New Form W-4 Does Not Apply to All State Tax Withholding – Are You Using the Right Forms?

In December 2019, the IRS issued a new Form W-4 to reflect the elimination of withholding allowances because individuals can no longer claim personal or dependency exemptions. While this was intended to allow for more accurate federal tax withholding calculations, it raises the question of what employers should do with respect to state tax withholding requirements.

The California Employment Development Department (EDD) recently stated that, because the new Form W-4 does not include allowances for personal income tax (PIT) withholding, employees who want to change their tax withholding amounts must use the state form for state tax purposes. Employers must provide both the IRS Form W-4 and the California equivalent Form DE-4 to employees. As of January 1, 2020, if employees do not complete a Form DE-4, employers must withhold state income taxes from the employee’s wages as if the employee were single and claiming zero withholding allowances. Employees who submitted a Form W-4 before 2020 are not required to submit a new Form DE-4 if they have no changes to their withholding allowances.

Other states like Idaho, Minnesota, Montana, Nebraska, and South Carolina have also implemented their own tax withholding forms that must be provided to employees along with the updated IRS Form W-4. However, states like Colorado, New Mexico, North Dakota, and Utah continue to use the updated Form W-4 for state purposes. Employers with employees in states that have no income tax (e.g., Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not need to worry about this distinction.

Be sure to check your state(s) of operation for their tax withholding requirements and distribute the appropriate forms to employees.

Action Items