IRS Releases New Form W-4 in 2020

The form is divided into 5 steps. The only two steps required for all employees are Step 1, where you enter personal information like your name and filing status, and Step 5, where you sign the form…

On December 5, the IRS released the final version of the 2020 W-4. The form has major revisions and has been re-titled Employee’s Withholding Certificate. The form has been updated to reflect the changes enacted by the Tax Cuts and Jobs Act of 2018. Read some frequently asked questions regarding the new Form W-4. View the 2020 Form W-4 here.

Major Changes to the Form W-4

• Withholding allowances are no longer used on the form, instead taxpayers calculate dollar amounts.
• Different filing status choices (head of household)
• The form is divided into 5 steps. The only two steps required for all employees are Step 1, where you enter personal information like your name and filing status, and Step 5, where you sign the form. Complete Steps 2 – 4 only if they apply to you. The five steps try to account for all sources of income — second jobs, a spouse’s job, self-employment income, and dividends and interest — to determine the correct withholding amount. Employees also enter information about dependents and tax deductions to determine withholding.

The IRS released FAQs regarding the new Form W-4, referenced below. For a complete list of FAQs on the 2020 Form W-4, please visit the IRS newsroom.

Why the new Form W-4?

The form has been updated to reflect the changes enacted by the Tax Cuts and Jobs Act of 2018. While it uses the same underlying information as the old design, it replaces worksheets with more questions to determine withholding for employees.

What happened to withholding allowances?

Allowances are no longer used for the new Form W-4. This change is meant to increase transparency, simplicity, and accuracy of the form. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.

Are all employees required to furnish a new Form W-4?

No. Employees who have furnished Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently supplied Form W-4.

Are new employees, paid after 2019, required to use the new 2020 Form W-4?

Yes. All new employees first paid after 2019 must use the new form. Similarly, any other employee who wishes to adjust their withholding must use the new form.

What about employees paid prior to 2020 who want to adjust withholding from their pay dated January 1, 2020 or later?

Employees must use the new 2020 Form W-4.

Should I ask all of my employees paid before 2020 to submit new Forms W- 4 using the new version of the form?

Yes. You may ask, but as part of the request you should explain that:

• they are not required to submit a new Form W-4, and
• if they do not submit a new Form W-4, withholding will continue based on a valid form previously provided.

For those employees who provided forms before 2020 and who do not submit a new one after 2019, you must continue to withhold based on the forms previously provided. You are not permitted to treat employees as failing to supply Forms W-4 if they don’t provide a new Form W-4. Note that special rules apply to Forms W-4 claiming exemption from withholding.

Will there still be an adjustment for nonresident aliens?

Yes. The IRS will provide instructions in the 2020 Publication 15-T, Federal Income Tax Withholding Methods, on the additional amounts that should be added to wages to determine withholding for nonresident aliens. Additionally, nonresident alien employees should continue to follow the special instructions in Notice 1392 when completing their Forms W-4.

When can we start using the new 2020 Form W-4?

The new 2020 Form W-4 can be used with respect to wages to be paid in 2020.

My tax situation is simple; do I have to complete all of the steps?

No. The form is divided into 5 steps. The only two steps required for all employees are Step 1, where you enter personal information like your name and filing status, and Step 5, where you sign the form. Complete Steps 2 – 4 only if they apply to you. Doing so will make your withholding more accurately match your liability.

What happens if I only fill out Step 1 and then sign the form?

Your withholding will be computed based on your filing status’s standard deduction and tax rates, with no other adjustments.

When should I increase my withholding?

You should generally increase your withholding if:

• you hold more than one job at a time or you and your spouse both have jobs (Step 2) or
• you have income from sources other than jobs or self-employment that is not subject to withholding (Step 4(a)).

If you do not make adjustments to your withholding for these situations, you may owe additional tax when filing your tax return, and you may owe penalties. For income from sources other than jobs, you can pay estimated tax instead of having extra withholding.

When should I decrease my withholding?

You should generally decrease your withholding if:

• you are eligible for income tax credits such as the child tax credit or credit for other dependents (Step 3), and/or
• you are eligible for deductions other than the basic standard deduction, such as itemized deductions, the deduction for IRA contributions, or the deduction for student loan interest (Step 4(b)).

I want a refund when I file my tax return. How should I complete the new Form W-4?

The new Form W-4 makes it easier for you to have your withholding match your tax liability. But if you prefer to have more tax than necessary withheld from each paycheck, you will get that money back as a refund when you file your tax return (keep in mind though you do not earn interest on the amount you overpay). The simplest way to increase your withholding is to enter in Step 4(c) the additional amount you would like your employer to withhold from each paycheck. Note, even if you don’t have any income tax withheld from your wages, you may get a refund if you are eligible for tax credits such as the Earned Income Credit, the Additional Child Tax Credit, or American Opportunity Credit.

Why do I need to account for multiple jobs? I have never done that before.

Tax rates increase as income rises, and only one standard deduction can be claimed on each tax return, regardless of the number of jobs. Therefore, if you have more than one job at a time or are married filing jointly and both you and your spouse work, more money should usually be withheld from the combined pay for all the jobs than would be withheld if each job was considered by itself. Adjustments to your withholding must be made to avoid owing additional tax, and potentially penalties, when you file your tax return. All of this has been true for many years; it did not change with the recent tax law changes. The old Form W-4 accounted for multiple jobs using detailed instructions and worksheets that many employees may have overlooked. Step 2 of the redesigned Form W-4 lists three different options you should choose from to make the necessary withholding adjustments. Note that, to be accurate, you should submit a 2020 Form W-4 to each employer you work for.

Which option in Step 2 should I use to account for my multiple jobs? Which is accurate? What if I don’t want to reveal to my employer on my W-4 that I have a second job?

Step 2 allows you to choose one of three options, which involve tradeoffs between accuracy, privacy, and ease of use:

• Step 2(a): For maximum accuracy and privacy, use the Tax Withholding Estimator at www.irs.gov/W4app. You will generally be guided to enter an additional amount to withhold in Step 4(c). While you will need to know the approximate amount of pay for each job, you will enter the additional amount of withholding in Step 4(c) on the Form W-4 for only one of the jobs. If pay for any of the jobs changes significantly, you will need to use the Tax Withholding Estimator again and submit a new Form W-4 to change the amount in Step 4(c) to have accurate withholding.
• Step 2(b): If you do not have access to the Tax Withholding Estimator but wish to have roughly accurate withholding and retain privacy, you may use the Multiple Jobs Worksheet on page 3 of the 2020 Form W-4. You will be guided to enter an additional amount to withhold in Step 4(c). While you will need to know the approximate amount of pay for each job, you will enter the additional amount of withholding in Step 4(c) on the Form W-4 for only one of the jobs. If a change in pay for any of the jobs changes the additional withholding amount in the lookup table used with this worksheet, you will need to submit a new Form W-4 to change the amount in Step 4(c) to have accurate withholding. If you (and your spouse) have a total of only two jobs and the pay at the higher paying job is more than double the pay at the lower paying job, this option is generally more accurate than choosing Step 2(c). If the pay at each job is more similar, choosing Step 2(c) is more accurate than choosing Step 2(b).
• Step 2(c): If you (and your spouse) have a total of only two jobs held at the same time, you may check the box in Step 2(c) on the Forms W-4 for both jobs. That is, to use this option, you should complete a Form W-4 for each job with the box in Step 2(c) checked. The standard deduction and tax brackets will be cut in half for each job to calculate withholding. You will not need to furnish a new Form W-4 to account for pay changes at either job. This option is accurate for jobs with similar pay; otherwise more tax than necessary may be withheld from your wages. The greater the difference in pay is between the two jobs, the larger this extra amount can be.  If the jobs do not have similar pay, you may use one of the options in Step 2(a) or Step 2 (b) instead.

What if I have side work where I’m not treated as an employee?

If you have income from self-employment (including as an independent contractor), you will generally owe both income tax and self-employment tax. Form W-4 is primarily intended to be used by employees who are not subject to self-employment tax. Thus, like the old Form W-4, the New Form W-4 does not compute self-employment tax. If you would like to use Form W-4 to make an adjustment to your withholding to account for self-employment income that you will receive from another source, use the Tax Withholding Estimator at www.irs.gov/W4app or refer to IRS Publication 505.

Is there a computer program I can use to help me complete Form W-4?

Yes. To provide maximum accuracy, you are encouraged to use the Tax Withholding Estimator available at www.irs.gov/W4app. You should consider using the withholding estimator if you:

• expect to work only part of the year (this does not apply if you are only switching jobs),
• had a large balance due or refund last year and it is no longer the beginning of the current year,
• have dividend or capital gain income or are subject to additional taxes, such as the additional Medicare tax,
• have self-employment income,
• prefer the most accurate withholding for multiple job situations, or
• prefer to limit information provided in Steps 2–4 but do not want to sacrifice accuracy.

NOTE: You may need a copy of your 2018 Tax Return on hand, for informational purposes, as you go through the Tax Withholding Estimator.