What You Need to Know About the New W-4 Tax Form for 2020

The W-4 tax form is getting a new look in 2020, and it promises to make the whole business of tax withholding much more accurate and much less confusing-- for both employers and their employees. So, if you will be starting a new job in 2020 or need to update your tax withholding status, then here are a few things you should know about the new W-4.

Why is the W-4 Form Changing?

The W-4 tax form, also known as the Employee’s Withholding Allowance Certificate, tells your employer how much federal income tax to withhold from your wages each payment cycle. Until recently, the value of this withholding allowance was linked to the amount of exemptions you claimed. The Internal Revenue Service (IRS) offered two types of exemptions: one personal and the other for dependent children under the age of 18.

Earlier this year, the IRS announced updates to the W-4 tax form since tax exemptions were eliminated with the passage of the 2017 Tax Cuts and Jobs Act. Under the new legislation, you can no longer claim personal exemptions or dependency exemptions. In it's place, standard deduction amounts have nearly doubled for tax years 2018 through 2025.

What is Different in the Updated W-4 Tax Form?

In addition to accounting or changes to tax legislation, the W-4 redesign is also supposed to make the form simpler and easier to complete for employees and ultimately help them to provide more accurate information. In fact, with the old form many employees avoided updating their withholding allowance altogether due to the complicated worksheets they had to work through.

If you are one of these people, then the W-4 will be a breath of fresh air. With the redesign, the confusing worksheet has been eliminated and is replaced with a simple 5-step process as well as a series straightforward questions.

Steps 2 to 4 is where all the changes are. Step 2 is meant for taxpayers working more than one job or who are filing jointly with a spouse who is also working. You only need to complete this step and the following two steps if they apply to you.

In Step 3, you can claim dependent children and other dependents out of your withholding. Step 4 allows you to make other adjustments to your withholding allowance, like having tax withheld for other sources of income.

What Do You Need to Do About the New W-4 Form?

Starting in 2020, if you need to complete a W-4, whether it’s for a change in employment, to account for a life change such as marriage or the birth of a child, or to adjust your withholding amount, you will need to use the updated version. If none of the above applies to you and you already have a W-4 on file with your current employer, then you are not required to fill it in again.

Since form W-4 tells your employer how much federal income tax to withhold from your wages, accurately completing a W-4 form can help ensure you have the right amount of federal income tax deducted throughout the year. This is important because having too little tax withheld from your wages, could mean you end up owing Uncle Sam at the end of the tax year, while withholding too much means you essentially give the US government an interest-free loan for a year.

To help ease the transition to the new W-4 and the changes to the tax legislation that are behind it, the IRS put out several early draft versions of the W-4 form, as well as a FAQs page about the revisions.

There is also a handy Tax Withholding Estimator. This online app walks you through the process of estimating your withholdings and helps you to estimate your upcoming tax refund or obligation based on your current withholdings. You can also get guidance on what you can do to change outcome of your federal income tax return-- i.e either get a refund, end up even, or owe the government come tax day. The app will additionally help you to navigate more complex tax situations, such as what to do with seasonal employment, self-employment income, and income from investments.

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