Understanding the 2020 Form W-4

By Makayla Fagen, CPA

The Tax Cuts and Job Act (TCJA), enacted in December of 2017, brought new Federal withholding tables for employers and employees last year. The IRS was not ready to issue their revised Form W-4 then, but is ready now! They have released the draft of the 2020 Form W-4 and it is drastically different than the Form W-4 we’ve come to understand. You can view the draft of the form at https://www.irs.gov/pub/irs-dft/fw4--dft.pdf.

The first change you will notice is the deletion of withholding allowances. Because the TCJA removed allowances on your personal tax return, the IRS revised the Form W-4 to more accurately compute employee withholding amounts. In Step 1, you will complete your personal information, including selecting your filing status. The form now includes the Head of Household filing status. Step 2 allows the employee to decide how to compute their withholding when the employee has more than one job or if the employee is married filing jointly and their spouse works as well. The IRS is encouraging employees to use the online estimator, at www.irs.gov/W4App, to compute their most accurate withholding and to maintain privacy with their employer. This allows them to bypass the other steps and enter the amount generated with the online tool on Step 4c. Otherwise, they can use the Multiple Jobs Worksheet, provided with the Form W-4, or to check the third option box if there are only two jobs that are roughly the same income. To complete Step 3, you must know what the dollar amount of child tax credits you will be receiving for the year. Step 4 allows the employee to factor in other activities, outside of their W-2 job, in the computation of Federal withholding taxes, such as interest, dividends, retirement income and deductions other than the standard deduction. In addition, you can enter an amount of additional tax you would want withheld each pay period. Step 5 requires the employees signature to make the Form W-4 effective.

As mentioned above, the new Form W-4 is factoring in your spouse’s income when determining how much to withhold. This means that if you submit an updated Form W-4 with your employer, or are starting a new job, your spouse will also need to update their Form W-4. It is important that only one spouse claims the credits and other income or deductions in Steps 3 and 4, so you are not under withheld at tax time. This is also the case if you work multiple jobs. You will only want to claim the items in Steps 3 and 4 once.

The good news is that you are not required to submit a new Form W-4 for 2020 if you have an existing, valid Form W-4 on file at your employer. However, if you obtain a new job in 2020 or would like to adjust your withholdings in 2020, you will be required to complete the 2020 Form W-4. If you do not submit a Form W-4 to your employer, you will automatically be treated as a single filer, with no other adjustments.

Confused yet? It seems like you are going to need to bring a copy of your tax return to your new job, just to complete your HR paperwork! Please let us know if we can be of any assistance during this process.

Makayla Fagen, CPA | Supervisor