2020 Payroll Taxes (Dec 31)

Our staff is busy updating payroll tax tables for 2020. Sadly, US Federal income tax withholding has become much more complicated, due to a fairly small change.

New employees hired in 2020 or after will use a revised W-4 form. Their federal withholding then uses a different calculation method for gross income. Employees hired before 2020 will still use their original, old-style W-4 forms, unless they prefer to update.

To handle the change, we need to add a second US Federal Tax Item for the 2020 method. It also requires 3 new Tax Tables, plus an extra set of Tax Packages. The 2020 payroll import will add them automatically.

For states that use multiple Tax Packages, it’s going to be especially complicated: if there used to be 3 of them, now there will be 6. Users who have set up extra Tax Packages for child support or other complications may also need to revise them, and/or create new ones.

In your Employee accounts, you’ll need to assign different Tax Packages, depending on whether they use the old or new W-4. For employees using the 2020 W-4 forms, you’ll also need to enter a federal adjustment amount from the W-4, rather than the number of federal exemptions.

On top of all that, the IRS booklet uses an annual step table for the new calculation method. We used weekly tables in the past, but switched both versions to annual for 2020.  It’s bigger numbers, but ends up with the same results.

Most states use the W-4 for their own payroll taxes. Presumably they will also need to add a second calculation method. Most have not done that yet, but stay tuned. The chaos will probably reverberate for years.

Dennis Kolva
Programming Director


Author: Dennis Kolva

Programming Director for Turtle Creek Software. Design & planning of accounting and estimating software.