On December 5, 2019, the Internal Revenue Service released a final Form W-4 for the new year. Beginning in 2020, employers will need to provide the redesigned Form W-4 to new employees. They’ll also need to supply this form to current employees who want to change their withholding.
However, employees who have submitted Form W-4 previously do not need to submit a new form just because of the redesign. Instead, employers should continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.
What is Form W-4?
Employees complete Form W-4 so their employers can withhold the correct amount of federal tax from their paycheck. A significant change for the 2020 form is that it no longer has withholding allowances.
Previously, the value of a withholding allowance was tied to the amount of the personal exemption. Now, employees may no longer claim personal exemptions or dependency exemptions.
You’ll notice the redesigned form has five steps. However, employees only need to provide information for the steps that apply to them. Steps 1 & 5 are required by all employees, but Steps 2 – 4 should only be completed if they apply to that employee’s particular situation.
Steps 1 & 5
Unless the employee holds multiple jobs at one time (including working as an independent contractor) or is married jointly to a spouse that also works, is claiming dependents, or would like to make other adjustments to their withholding, your employee should only complete Steps 1& 5. These include:
- Step 1: Entering personal information (including marital status).
- Step 5: Employee signature and date.
That’s it! Easy, peasy, lemon-squeezy. What may be confusing is if any of steps 2 – 4 apply to the employee. In that case, simply follow the steps below!
Steps 2, 3 & 4
Whereas Steps 1 & 5 are mandatory for all employees to complete, employees should only fill out steps 2 – 4 of the 2020 Form W-4 if they apply to them.
Note that Steps 3 – 4 are completed on Form W-4 for only one job, and these steps are left blank for any other jobs the employee holds. Additionally, withholding is most accurate if an employee completes Steps 3 – 4(b) on the Form W-4 for the highest paying job.
Step 2: Multiple Jobs or Spouse Works
Employees should complete this step if they:
- Hold more than one job at a time, or
- Are married and filing jointly, and their spouse also works.
For the greatest accuracy on this step, the IRS recommends simply using their online estimator. This tool is quick and user-friendly so employees can easily calculate their tax withholding without the confusion of complicated tables.
Based on the information provided, the calculator will compare taxes currently being withheld with the employee’s estimated tax obligation to identify if too much or too little is being withheld. Then, the estimator results will help employees adjust their withholding on the 2020 Form W-4.
Step 3: Claim Dependents
Employees should complete this step if they are claiming dependents and:
- Their income will be $200,000 or less, or
- If they are married filing jointly and their income is $400,000 or less.
Applicable employees simply need to:
- Multiply the number of qualifying children under age 17 by $2,000
- Multiply the number of other dependents by $500
- And add these two amounts, entering the total in box 3.
Step 4: Other Adjustments
Lastly, Step 4 allows employees to make any other adjustments to their withholding. For example, other income that won’t have withholding (e.g. interest, dividends, retirement income). Employees who expect to claim deductions other than the standard deduction or want any additional tax withheld each pay period (e.g. for a greater refund at tax time) can also fill out this section.
What do you think?
The new 2020 Form W-4 may seem tricky just because it’s different, but the form really is much easier to use! And with the help of the IRS Tax Withholding Estimator, employees can now take advantage of a much more accurate withholding. Additionally, the new form and estimator tool give employees a better understanding of their paycheck!
Want to learn more about the new W-4? Check out the IRS’ FAQ for even more information, examples, and common questions from both an employer- and employee-standpoint. And don’t forget to follow us out on Facebook, Twitter, and LinkedIn for even more business tips & tricks!