Tax Prep & Planning

Have You Heard About the New W-4 Form?

The IRS has announced they will release a new W-4 Form for use starting in 2020. Read on to gain more insight into this updated tax form. 

[Refresher] What is Form W-4? 

Form W-4, Employee’s Withholding Certificate, controls the amount of income tax employers withhold from an employee’s paycheck each pay period. 

Why the New W-4 Form?

The IRS is updating the Form W-4 to try to reduce under-withholding and the likelihood of a taxpayer owing an additional amount when they complete their income tax return. 

After collecting user feedback, the IRS is adding more steps to improve withholding accuracy. “The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing the burden for employers and payroll processors.”

The revised form reflects changes from the Tax Cuts and Jobs Act, which made major revisions affecting taxpayer withholding. 

What’s Changed on the New Form?

1 – No More Withholding Allowances

The redesigned Form W-4 will no longer use withholding allowances, which in prior years were connected to the amount of the personal exemption. Due to changes in the law, for tax years 2018 through 2025, taxpayers may not claim personal exemptions.

2 – Five-Step Process

There will now be five steps listed on the new Form W-4 in order to determine tax withholding. Not all taxpayers need to fill out every section of the Form W-4. In fact, those who only have one job and take a standard deduction only need to complete Steps 1 and 5.

  • Step 1: Personal Information
  • Step 2: Multiple Jobs or Spouse Works
  • Step 3: Dependents
  • Step 4: Other Adjustments
  • Step 5: Signature

3 – Adding Dependents to Help Calculate Tax Credits 

Taxpayers with incomes of $200,000 or less ($400,000 or less for joint filers) may complete Step 3 to show children under age 17 who qualify for the child tax credit and other dependents who qualify for the other dependent credit. Employers will use the information in this step to reduce withholding.

4 – Reporting Additional Income and Other Adjustments to Withholding

If there are only two jobs in total (the employee has one other job or a spouse who works) the employee may simply check a box in Step 2. Employers will adjust withholding accordingly. In other situations, employees may complete worksheets included in the W-4 instructions to adjust withholding up or down based on investment income, itemized deductions, and other job income. Taxpayers report these adjustments in Step 4.

When Can We Expect To See the New W-4?

The IRS will release the 2020 Form W-4 in December 2019. 

Who Should Fill Out a New W-4 Form? 

Employees who have submitted a Form W-4 in any year before 2020 will not be required to submit a new form merely because of the redesign. Employers can continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.

The IRS also encourages taxpayers to do a Paycheck Checkup to see if they are withholding the right amount of tax from their paychecks. This is important to calculate if you have too much or too little withheld.

New employees hired in 2020 must use the new Form W-4. Previous employees who experienced a major life change such as a marriage, divorce, or birth/adoption of a new child should consider filling out the new form.

General Guidance for Tax Withholding

To avoid tax penalties, taxpayers should pay in at least 90% of their current year’s tax liability or 100% of the prior year’s tax (110% if adjusted gross income is above $150,000).

Employees should complete every applicable step. Although Steps 2, 3, and 4 are optional, the more information the employee provides the more likely withholding will be accurate.

Want more information? View the Form W-4, Employee’s Withholding Allowance Certificate, and related instructions at www.irs.gov/W4. And for hands-on guidance, find an advisor nearest you.

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