The IRS Announces a New W-4 Form for Tax Year 2020
It's transparent and straightforward, yet very different.
The Internal Revenue Service wasn’t quite done changing things up for taxpayers when it redesigned Form 1040, once for the 2018 tax year and then again for 2019. Now there’s a new Form W-4 too, proposed by the IRS in May 2019, and officially released in December 2019. It’s required for everyone who starts a new job in 2020 or later.
The change is intended to accommodate changes made by the Tax Cuts and Jobs Act (TCJA) in 2018, but the IRS has indicated that it also wanted to make the form easier for taxpayers to navigate. Let’s face it—claiming allowances and figuring out how each allowance coordinated with a certain number of paycheck dollars was difficult.
Well not anymore. The IRS calls the new form “straightforward” and it says it “increases transparency.” The University of Chicago describes it as “significantly different.”
You’ll fill out the new W-4 form if you get a new job or update your withholding in 2020, and it will affect the tax return you file in 2021.
New 2020 W-4 Form Is (Almost) All Questions and Answers
The first and primary page of the new W-4 can’t get much simpler. It includes five steps, and the keyword in three of them is “if”—such as, “if you do A, B, or C, complete this step,” and “if your income is D, multiply E by F or G.”
You’re entering the same information you were asked for on the previous form, but you’re arriving at it differently by answering a short series of questions and following the accompanying instructions—all this on one page. However, multiple tables and worksheets are attached after that page.
You can now enter your anticipated deductions, tax credits, and income for the year without having to calculate and convert them into a number of allowances. You can also use the new form to ask your employer to withhold more taxes than necessary without indicating why. That information is now confidential.
Withholding more taxes than necessary may be a nice touch if you earn additional income as a freelancer and will need to pay taxes on it in the future, but you’d rather that your boss didn’t know.
There Are No More Allowances
The IRS decided these changes were necessary because the old W-4 worked on a system that linked withholding allowances—that magic number that determined how much tax was withheld from your paychecks—with the value of the year’s personal exemption. It used to be that you could claim a personal exemption on your tax return for yourself, your spouse, and each of your dependents to reduce your taxable income.
But these exemptions were eliminated from the tax code by the TCJA, and that caused a fair bit of confusion when people tried to update their old W-4s in 2018 and when they filed their 2018 tax returns in 2019. All this is reflected in the form’s new name. It’s no longer the “Employee’s Withholding Allowance Certificate.” Now it’s just the “Employee’s Withholding Certificate.”
Completing the Form: Steps 1 and 5
The first of the five steps is the easiest. Step 1 is where you enter your name, Social Security number, address, and filing status. In fact, you have the option of just completing this and Step 5, which is for your signature. Steps 2 through 4 are optional, assuming you want the full amount of taxes withheld from your pay based on your filing status.
Completing Step 2
Basing your withholding on only your filing status might not be ideal if you:
- Work more than one job or have other sources of income
- Are married and both you and your spouse work
- Have several dependents
- Are eligible to claim numerous itemized deductions
Basic withholding might not be enough or it might be too much to cover your tax liability in these cases.
This is where Steps 2 and 4 come in, and Step 4 is definitely the easier of the two. Step 2 is dedicated to taxpayers who work more than one job and have working spouses. It gives you three options for calculating your withholding in these cases:
- You can go online and use the IRS withholding estimator, and the IRS indicates that this will give you the most accurate result.
- You can use the Multiple Jobs Worksheet that’s attached to the W-4 form.
- You can check a default box at Step 2(c) if both jobs pay about the same, or if you and your spouse only work one job each and your incomes are similar.
Yes, two of these options require doing some calculations, but at least the IRS estimator will do the hard work for you.
Step 4 also offers three options, and this one is for use if you have other income sources from which taxes aren’t withheld, such as from investments or pay as an independent contractor if you have a side gig. You can simply enter the anticipated amount of this extra income in Step 4(a).
You also have the option of not divulging how much extra income you have. Remember, you’re completing this form to give to your employer to enable the company to calculate your withholding. Maybe you don’t want them to know that you enjoy an extra $30,000 a year on the side. That’s OK. Use Step 4(c) to enter an extra amount you want to be withheld from hour pay instead.
Step 4(b) comes into play if you’re eligible to claim a lot of itemized deductions so you’d rather itemize than claim the standard deduction at tax time. You’d also use this step if you qualify for any above-the-line adjustments to income that you don’t have to itemize to claim, like the student loan interest deduction. Now you have to deal with a worksheet again—the Deductions Worksheet, which is on page 3 of the form. Complete the worksheet then enter the resulting number.
You might notice that there’s a little additional space at the bottom of Step 4. Here’s where you can write “EXEMPT” if you happen to be exempt from withholding. If this is the case, you’ll just complete Step 1 and Step 5. You might be exempt from withholding if you had no tax liability in 2019 and you don’t expect to in 2020, either.
Completing Step 3
This is where you let your employer know whether you’re going to be claiming any dependents, and it’s painless if you can do math in your head. You won’t even need a calculator.
Multiply the number of child dependents you have by $2,000 and enter the result. Multiply the number of your adult dependents by $500, if you have any, and enter the result. Then add the two entries together. That’s it. You’re done with Step 3.
Where to Get Help for Form W-4
Help is available if you’re still wincing at the thought of completing this new tax form. First, there’s that Tax Withholding Estimator offered by the IRS.
You’ll need your most recent pay stub for use with the Estimator, and pay stub for your spouse, too, if you’re married. You should have a firm idea of how much additional income you have, if any, that’s not subject to withholding. And make sure you have a copy of your most recent tax return on hand.
The IRS has also issued a new Publication 15-T, “Federal Income Tax Withholding Methods,” to help you along. It can be helpful if you have any specific questions or if you’re an employer struggling with all these changes. It includes 2020 withholding tables as of December 2019.
And, of course, there’s always that tried-and-true failsafe: Seek the help of a tax professional if you’re really confused or if your tax situation is particularly complex.
Do You Have to Submit a New W-4?
All new hires after Jan. 1, 2020, have to use the newly designed Form W-4. Otherwise, their employers must base their withholdings on the assumption that they’re claiming the standard deduction for single taxpayers—even if they’re married or qualify as head of household—and that they have no dependents. This could be highly disadvantageous if you don’t fit into these parameters.
Otherwise, you don’t have to deal with all this if you began working for your employer before 2020, and if you haven’t experienced any life events that might make you want to change your withholding, such as getting married, having a child, or taking on an additional job. Employees who already have a W-4 on file with their employers for tax years 2019 or earlier aren’t required to submit this new form, but they can if they want to. Their employers can continue using their form from the previous year.
Internal Revenue Service. "IRS, Treasury unveil proposed W-4 design for 2020." Accessed March 2, 2020.
Internal Revenue Service. "IRS, Treasury Unveil Proposed W-4 Design for 2020." Accessed March 2, 2020.
The University of Chicago. "New IRS Form W-4 for 2020." Accessed March 2, 2020.
American Payroll Association. "2020 Form W-4." Accessed March 2, 2020.
Internal Revenue Service. "FAQs On the 2020 Form W-4." Accessed March 2, 2020.
Internal Revenue Service. "Prior Year Products." Accessed March 2, 2020.
Internal Revenue Service. "Employee's Withholding Certificate." Accessed March 2, 2020.
Internal Revenue Service. "About Publication 15-T, Federal Income Tax Withholding Methods." Accessed March 2, 2020.