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New Downloadable Tool Helps Small Business with Employee Withholding

The Internal Revenue Service has come up with a new online tool that’s designed to help employers—especially those in small business—easily determine the correct amount of income tax to withhold from workers’ pay.

It’s called the Income Tax Withholding Assistant for Employers, and the new spreadsheet-based tool is designed to help employers transition to the new withholding system. The current administration has done away with the withholding allowances of the old system, with the new setup taking effect Jan. 1.

The new assistant smooths the introductory process by helping employers easily implement new income-tax withholding requests from employees who fill out the completely redesigned 2020 Form W-4, Employee’s Withholding Certificate.

The new tool can also help employers continue to properly withhold from workers who still have a withholding request on file using a past version of the W-4 that’s based on withholding allowances.

“We’ve been working closely with the payroll community and other partners to make improvements in the withholding process,” said IRS Commissioner Chuck Rettig. “As part of this effort and based on feedback from partners, the IRS has created a new spreadsheet-based tool that’s designed to help small businesses navigate a variety of situations involving their employees to help ensure the right amount of withholding.”

The Income Tax withholding Assistant for Employees is free and is now available for download on IRS.gov.

The spreadsheet application helps any employer who would otherwise have to figure withholding manually, using a worksheet and either the percentage method or wage-bracket tables found in Publication 15-T, Federal Income Tax Withholding Methods.

If an employer already uses an automated payroll system, they won’t need the new assistant because their automated system does the math for them.

The Income Tax Withholding Assistant for Employers is available in Microsoft Excel. The employer can use the tool to create a profile for each employee that then automatically calculates their correct federal income tax withholding.

Using the Withholding Assistant

The employer starts out by indicating the pay-period frequency (weekly, bi-weekly, monthly, etc.) and then enters key information from the employee’s Form W-4. For best results, the employer has to indicate whether the employee submitted a 2020 Form W-4 (which doesn’t base withholding on the number of allowances claimed), or a prior version of the W-4 (which does).

The employer can then save a separate customized copy of the file for each employee that contains the employee’s Form W-4 information. Then, each pay period, the employer simply opens the worker’s file and enters the gross wage or salary amount for the pay period. The tool automatically then displays the correct amount of federal income tax to withhold from the employee’s pay.

For more information on the Income Tax Withholding Assistant for Employers, the new redesigned Form W-4, and other helpful topics for employers and small businesses, check out IRS.gov

Bob Williams

Forget genes; I’ve got words in my DNA. Communication has been part of who I am nearly all my life. From a long career in radio news to another one in newspapers – and a University of Georgia journalism degree sandwiched between the two – language has been my life. I’ve also been fortunate to have learned the tax business from the ground up here at Drake, starting with 1040.com online forms some years ago before moving on to work on the Web. In all things tax-ish, we aim to give you tools you can use.

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