The New Form W-4 is Finally Here!

Forget everything you knew about W-4 withholdings because the new form W-4 is finally here! On December 5, 2019, the IRS released the final version of the 2020 Form W-4. The new form is very different than previous versions because of federal tax law changes that took place in 2018.  This new form is designed to make accurate income-tax withholding far simpler for employees.  As stated by the IRS:

“The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.”

Who needs to fill this out?

The Internal Revenue Service (IRS) is not requiring all employees to complete the revised form and has designed the withholding tables so that they will work with both the new and prior year forms. However, employees hired as of January 1, 2020, and anyone who makes withholding changes during 2020 must submit the new form W-4.

What’s different about this form?

We suggest you read the instructions that are included with the form, so you get a fundamental understanding of what is different. The notable differences are as follows:

1. Up until now, the form only included the status of “Married” or “Single.” Now, the form includes a new employee status of “Head of Household.” (Step 1c)
2. Withholding allowances have been eliminated.
3. Employees can account for many factors to reduce or increase the tax that will be withheld as follows:
4. Tax credits of dependents
5. Tax effects of other credits
6. Effect of other deductions of taxable income
7. Effect of having 2 jobs
8. Other earnings they wish to take into consideration to increase tax liability

What needs to be filled out?

Every employee must complete Steps 1 and 5. Steps 2, 3, and 4 are optional, but completing them will help ensure that the employee’s federal income tax withholding will more accurately match their tax liability. Step 1 is for the employee’s personal information; Step 2 is for households with multiple jobs; Step 3 is used to claim tax credits for dependents; Step 4 is for other adjustments (additional income, such as interest and dividends, itemized deductions that exceed the standard deduction, and extra tax you want withheld.); Step 5 is reserved for the employee’s signature.

Need more information?

The IRS has also published Frequently Asked Questions that you may find helpful as you complete the form (https://www.irs.gov/newsroom/faqs-on-the-draft-2020-form-w-4). You can download the form here.