Going into 2020 ten states had to decide whether to create their own state-specific W-4 or use the dramatically different 2020 Federal W-4 as a result of the Tax Cuts and Jobs Act of 2017. Previously, these states had used the Federal W-4 for their own state W-4. The states that had to make this decision were Colorado, Delaware, Idaho, Nebraska, New Mexico, North Dakota, Oregon, South Carolina, Utah, and Wisconsin. The following states opted to create their own state W-4 forms: Delaware, Idaho, Nebraska, Oregon, South Carolina, and Wisconsin whereas Colorado, New Mexico, North Dakota, and Utah will adopt the new inputs that the 2020 Federal W-4 put forth.
Changes to the Federal Form W-4
As a result of the Tax Cuts and Jobs Act (TCJA,) the IRS is making substantial changes to the Form W-4. The 2020 W-4 was redesigned to reduce the form's complexity and to increase transparency and accuracy in the withholding system. Beginning with the 2020 Form W-4, employees will no longer be able to request adjustments to their withholding using withholding allowances. Instead, using the new Form W-4, employees will provide employers with amounts to increase or reduce taxes and amounts to increase or decrease the amount of wage income subject to income tax withholding. All new employees hired in 2020 will need to complete a new 2020 Form W-4, and any existing employee changing their withholding amounts will have to complete a new 2020 Form W-4.
This major change posed a challenge to the states who relied on the Federal Form W-4 for their own state withholding because of the changes in how federal income tax is calculated need to be factored into how the payroll industry calculates federal withholding—and state withholding for states using the Federal W-4—on employee paychecks. The final version of the 2020 Form W-4 was released by the IRS on December 5, 2019.
States Creating Their Own W-4
The Delaware Division of Revenue released the state withholding certificate on January 6th. The new Delaware Form W-4 is effective for 2020 and should be used for all new employees and employees wishing to change their withholding. The Delaware Form W-4 includes a separate computation worksheet for residents and non-residents to determine withholding allowances.
For more information on Delaware taxes, visit the Delaware Division of Revenue website.
In early 2019, the Idaho State Tax Commission launched its first Idaho-specific Form W-4, the ID W-4, along with an updated withholding table guide. According to the Idaho Tax Commission Chairman Ken Roberts, Idaho released its own form to give employees a better way to calculate and update their withholding information in light of the federal and state tax systems now diverging when it comes to calculating individual income tax. “While the federal W-4 form is still needed for calculating federal withholding, the Idaho W-4 is a shorter, simpler and far more accurate way of determining your Idaho withholding,” Roberts said. “We hope it encourages more taxpayers to update their W-4 and avoid unexpected tax bills.” The Idaho Commission has the goal for as many Idahoans who had not yet updated their withholding since the TCJA passed late in 2017 to use the new Idaho W-4 to get a more accurate withholding calculation for the coming year.
For more information on Idaho taxes, visit the Idaho State Tax Commission website.
Like Idaho, Nebraska also recognized the need for a new state-specific withholding form in light of the now significant differences between the Federal Form W-4 and the laws of Nebraska as it comes to the standard deduction and personal exemptions allowances. Nebraska released the W4-N in order to account for these differences. Nebraska’s new form is similar to previous versions of the Federal Form W-4. Legislative Bill 1090, passed by Governor Pete Rickets on April 17, 2018, provided for Nebraska to not have to change their provisions related to income tax brackets, personal exemptions, standard deductions, and itemized deductions. In other words, Nebraska can continue to use state allowances when Federal allowances will cease to exist on the 2020 Federal W-4. In this way, the Nebraska Department of Revenue anticipates few disruptions to state withholding moving forward as a result of the new Nebraska W4-N.
For more information on Nebraska taxes, visit the Nebraska Department of Revenue website here.
The Oregon Department of Revenue released an Oregon-specific withholding form, the OR-W-4, in 2019 to replace the state’s reliance on the Federal W-4. The following statement from Oregon’s Department of Revenue highlights the state’s desire to provide an easier withholding experience for employees and future flexibility for the state should the Federal W-4 continue to change:
“Oregon wage earners who use separate Form W-4s for federal and Oregon income tax withholding will have a new option for withholding documentation in 2019 with the release of the Oregon-specific Form W-4. With this form, employees will no longer need to complete a separate federal form W-4 and write “For Oregon only” at the top to designate their amount of state withholding. It will also give Oregon more flexibility in adapting to future federal tax law changes without unnecessarily burdening employees or employers.”
For more information on Oregon taxes, visit the Oregon Department of Revenue website here.
South Carolina’s Department of Revenue opted to create a state-specific withholding form, the SC W-4, for use beginning in 2020. The South Carolina Withholding Tax Tables include allowances that have been eliminated from the Federal Form W-4 which is the reason for the new state form. The 2020 SC W-4 marks the first time that South Carolina has had a general use state form.
For more information on South Carolina taxes, visit the South Carolina Department of Revenue website here.
Wisconsin has a slightly different take than Idaho, Nebraska, and Oregon when it comes to their new state-specific W-4. Whereas the former states are encouraging employees to complete the new state-specific withholding forms, Wisconsin has declared that only if employees determine that their withholding is not enough based on their current withholding from the Federal W-4 should they complete a new Wisconsin Form WT-4. Wisconsin is, however, requiring beginning in 2020 that all employees hired after December 31, 2019, complete a WT-4 along with any employees who wish to change or update their withholding. The state is also giving employers the option to request that employees complete new WT-4s regardless of their start date. Employees who are satisfied with their withholding, need not complete a new form. The withholding exemptions listed on their existing Federal W-4s on file can still be used to calculate withholding.
For more information on Wisconsin taxes, visit the State of Wisconsin Department of Revenue website here.
States Adopting the 2020 Federal W-4
On November 14th, 2019, PaycheckCity received verbal confirmation that Colorado will adopt the new IRS inputs from the 2020 Form W-4. As a result of the drastic changes to the 2020 Form W-4 Colorado issued a new withholding instruction worksheet for use with the 2020 Form W-4. Colorado's revised formula does not use allowances to calculate withholding but rather uses an employee's annualized wages and a deduction of $4,000 a year, or $8,000 if the married and filing jointly.
For more information on Colorado taxes, visit the Colorado Department of Revenue Taxation Division website here.
In an email response from North Dakota on November 14th, 2019 to PaycheckCity’s research team, North Dakota has indicated that they will adopt the new IRS inputs in 2020.
For more information on North Dakota taxes, visit the North Dakota Office of State Tax Commissioner website here.
New Mexico has stated to PaycheckCity’s tax research team as of November 14, 2019, that they will continue using federal Form W-4 for withholding and will not be creating their own state-specific W-4 for 2020.
For more information on New Mexico taxes, visit the New Mexico Taxation and Revenue Department website here.
Utah will use the 2020 Federal Form W-4 as their state withholding form. Utah’s withholding formula remains unchanged in 2020.
For more information on Utah taxes, visit the Utah State Tax Commission website.
For additional state tax information visit the PaycheckCity state income tax pages.