Breaking the Code: New Form W-4 for 2020 – Employee’s Withholding Certificate
By: Rachel Speigle Dunnigan, CPA, MSA, CFP®
We’ve had many changes in the last two years since the Tax Cuts and Jobs Act was enacted. Another update is for employees that have their income tax withheld through their paycheck. We want to make sure that you have the latest information on the new Form W-4 for 2020:
Why did they redesign the form?
Since the form was confusing for most taxpayers, the IRS wanted to increase transparency and accuracy in a more straightforward manner. The new form facilitates a more precise withholding number so that taxpayers with withholding won’t be hit with a large tax bill or a surprise refund when they file their taxes. As a reminder – this update doesn’t affect the total amount of tax that a taxpayer will pay, but simply how much of the tax will be withheld throughout the year from paychecks.
What has changed about the form?
The main change from previous W-4s is the elimination of withholding allowances. Instead of claiming these allowances, employees now claim their dependents or other deductions. In essence, it replicates the view of a full tax return. Based on each taxpayer’s job situation, there may be calculations involved, but the idea is to simplify in the long run.
For these reasons, the layout is different – breaking out the form into five main steps:
1. Personal Information
2. Multiple Jobs / Spouse Works
If both spouses work and earn a similar paycheck, employees only need to check a box for the IRS to calculate their appropriate withholding amount.
If you have a slightly more complicated tax situation, you may need to use the IRS estimator for this step, which is found at www.irs.gov/W4App, or use the Multiple Jobs Worksheet. You will need to have your current paystubs handy as well as your previous year’s tax return.
3. Claiming Dependents
For certain income levels with dependent children under age seventeen, you will need to multiply each by $2,000 and other dependents by $500.
4. Other Adjustments
This is comprised of both other income that might not be subject to withholding and other itemized deductions (i.e. mortgage interest, charitable contributions).
5. Signature Requirement
Do I have to fill out the new form?
The new W-4 is required to be filled out for new hires beginning in January 2020. The form is available for existing employees, although not required, if they would like to adjust their withholdings.
Even if you are not required to submit a new W-4, it is a good idea to do a paycheck check-up regularly because major life changes (getting married, having a child, buying a home) can update the recommended withholding amount.
Another consideration is that this change is only for your Federal income taxes. Some states follow the new Federal Form W-4 and other states have their own that should be filled out. In Massachusetts, this form is the MA Form M-4.
Along with many of the other changes, we are aware that this may be overwhelming or a bit confusing at first. We are happy to assist with any questions and a paycheck check-up to ensure that your employer is withholding enough taxes going forward.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.