Details of the Updated Form W-4

For 2020, the Internal Revenue Service (IRS) released a long-anticipated update to Form W-4 aimed at helping you avoid withholding too much or too little tax. The document overhaul was precipitated by changes in the 2017 Tax Cuts and Jobs Act (TCJA) and seeks to reduce complexity, support transparency, and increase the accuracy of the withholding system.

The biggest change to tax withholdings with the new Form W-4 is that the IRS is no longer using the marital status and allowance system.  Before the TCJA, withholding allowances were tied to the amount of your personal exemption, and now under the TCJA, you cannot claim either personal or dependency exemptions. Moving forward, your income tax withholding will be calculated based on your expected filing status and standard deduction.

Despite the updates, you are not required to complete a new Form W-4 if you already have the old form on file with your current employer.  However, you do have the option to update your W-4 with your employer, if you wish.

Have you done a Paycheck Checkup?

To avoid paying too little or too much tax, you should regularly check your withholdings and update them as necessary.  You can perform a Paycheck Checkup using the newly improved IRS Tax Withholding Estimator.  The Tax Withholding Estimator has numerous features, including recommendations for your individual situation, that are geared at setting you up for success when it comes time to file your tax return.  Learn more about doing a paycheck checkup.

What do employees need to know about the new W-4?

The new form is divided into five steps. Only Step 1 (personal information) and Step 5 (signing the form) are required. Steps 2-4 are optional but should be completed if they apply to your situation. The updated Form W-4 is designed to make your withholdings more accurately match your expected liabilities.

The IRS especially recommends people who work multiple jobs to check their withholding to avoid having too little tax withheld.  This includes families with two working spouses.

What do employers need to know about the new W-4?

The new Form W-4 is available now and should be used for any wages to be paid after 2019. Any employee who is first paid in 2020 must use the new Form W-4. Additionally, any current employees who wish to update their withholdings must also use the new version. If an employee fails to furnish their W-4, treat them as a single filer with no adjustments.

As an employer, make sure you’re using the updated 2020 withholding tables.

For more information about the new Form W-4, visit our previous article on this topic.  As always, we’re here to help you.  Reach out to your Adams Brown advisor should you have any questions.