Ten states have had to decide whether to create their own state-specific W-4 or use the dramatically different Federal W-4 coming in 2020 as a result of the Tax Cuts and Jobs Act of 2017. These states are Colorado, Delaware, Idaho, Nebraska, New Mexico, North Dakota, Oregon, South Carolina, Utah, and Wisconsin. So far, Delaware, Idaho, Nebraska, Oregon, and Wisconsin have announced that they are creating their own state W-4s whereas Colorado, New Mexico, and North Dakota have indicated that they will adopt the new inputs that the 2020 Federal W-4 puts forth. PaycheckCity’s tax research department continues to follow up with the state departments of revenue to stay abreast of the remaining two states—South Carolina and Utah’s—decisions.
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 in to how the payroll industry calculates federal withholding—and state withholding for states using the Federal W-4—on employee paychecks. An “early release” of the 2020 Form W-4 has been posted by the IRS with the final version of the form expected in December. While the final publication will not be until December, no further substantive changes to the Percentage or Wage Bracket Method are expected.
States Creating Their Own W-4
Based on an email from the Delaware Forms Team on November 14th, 2019, Delaware is creating their own form and it is currently in progress. There is no indication yet as to the date of release.
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 here.
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.
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 has indicated that they will adopt the new IRS inputs from the 2020 Form W-4. However, Colorado does not yet have actual calculations. Colorado updates their wage withholding tables every other year, beginning with odd numbered years. Their website indicates that their posted withholding tables are for filing periods effective January 1, 2019, through December 31, 2020. Given this information, their withholding tables will not be changing (unless they change their decision).
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. Similar to Colorado, North Dakota does not yet have their calculations. North Dakota will likely release their new withholding guide in December 2019.
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. They are hoping to have their FYI-330 and FYI-104 updated by the end of November.
For more information on New Mexico taxes, visit the New Mexico Taxation and Revenue Department website here.
States Who Have Yet to Declare
On November 6th, 2019, South Carolina stated they were currently making changes to their withholding tax tables and MAY create a South Carolina Form W-4. Additional information will be posted on their website as it becomes available.
Based on an email from the South Carolina Department of Revenue on November 14th, 2019, they have not finalized a decision yet on whether or not they will create a South Carolina Form W-4. Their inclination is that they will create their own W-4 form that will include allowances.
For more information on South Carolina taxes, visit the South Carolina Department of Revenue website here.
Utah has not announced whether or not they plan to create their own state-specific withholding form. Utah’s state legislature is still in session, so PaycheckCity is eagerly anticipating an update on any 2020 withholding tax changes.
For more information on Utah taxes, visit the Utah State Tax Commission website here.
PaycheckCity will continue to monitor updates with these states and post information to our state income tax pages as new information arises or as new state-specific W-4s are published.