The New W-4 Form

At the beginning of the 2020 year, the IRS debuted a revised version of the W-4 form, with the intent of determining an employee’s federal tax withholding with greater accuracy.

Tips for Completing the New Form

  • All new employees, as well as existing employees who want to adjust withholdings, must complete the new W-4 form. If an existing employee is pleased with their current withholdings, they are not obligated to complete a new W-4.
  • The only portion of the new W-4 that is mandatory to complete is Step 1 (name and filing status) and Step 5 (signature). If an employee only fills out Step 1, their withholding amount is based on the standard deduction for their filing status and tax rate.  For taxpayers who typically itemize their deductions, only filling out the mandatory fields will most likely result in an overpayment to taxes.
  • If the taxpayer wishes to have no federal tax withheld from their pay, they must write “Exempt” on line 4C.
  • If the taxpayer has multiple jobs, or has a spouse who works, filling out the information in Step 2 will provide greater accuracy for withholding amounts. If a taxpayer has multiple jobs that have similar pay, or their spouse is paid a similar amount, checking the box in Section C under Step 2 is sufficient.  Otherwise, if the jobs are dissimilar in pay amount, either use the online estimator or use the Multiple Jobs Worksheet to determine accurate withholding.  Then, enter the information on Line 4 (c) under Step 4.
  • Adding dependent information will further increase withholding accuracy. If income is $200,000 or less for individual filers, or $400,000 or less if married filing jointly, a taxpayer may be eligible for a child or other dependent credit.  For children under the age of 17, the maximum child tax credit is $2000.  For other qualified dependents (which can include children 17 and older), the maximum credit is $500.
  • If a taxpayer itemizes their deductions, it is beneficial to complete the Deductions Worksheet located on page 3 of the W-4. Taking this information into account will further serve to improve withholding accuracy.  After completing the Deductions Worksheet, the resulting info will be entered on line 4 (b) under Step 4.

Even though the new W-4 form may feel more complex to the average taxpayer, it is a relatively straightforward form with comprehensive directions written in an easy-to-understand format.  Provided that the taxpayer has their most current tax return to refer to, completing the new W-4 should be a painless process that results in substantially improved withholding accuracy.

Income Tax Withholding Assistant for Employers

There is also a new tool available for employers that do not use an automated payroll system and calculate their own payroll by hand. It will ease the transition to the redesigned withholding system and help them determine the right amount to withhold from workers’ pay for employees that complete the W-4.  You can find it here:

https://www.irs.gov/businesses/small-businesses-self-employed/income-tax-withholding-assistant-for-employers

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