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Understanding the New Form W-4


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As we near the end of 2020 many employers and employees are still trying to figure out the new 2020 W4 form.  This is the first major redesign of Form W4 since 1987 which was in response to the Tax Reform Act of 1986. According to the IRS “the new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system,” although some might beg to differ.

The true test of the form’s accuracy will be determined in 2021 when employees file their personal income tax returns for 2020.  If the Form W-4 is completed properly, employees should expect to see only a small amount due or refunded.

So let’s break it down, piece by piece.  Keep in mind that the only required steps are Step 1 and Step 5, the other steps only need to be completed if applicable.

Step 1 – Enter Personal Information

  • This step should be straight-forward.  Enter your name, address, and select a filing status.

Step 2 – Multiple Jobs or Spouse Works

  • If you have more than one job, or if you’re married and your spouse also works, and the income from both sources is the same or similar, check the checkbox
  • If you have more than one job, or if you’re married and your spouse also works, and the income from both sources differs, complete the Multiple Jobs Worksheet

Step 3 – Claim Dependents

  • If you are filing married filing jointly and your income is over $400,000 or if you are filing married filing separately or single and your income is over $200,000, skip this step
  • Multiply each dependent child who will be under the age of 17 on December 31 by $2,000
  • Multiply each other dependent (older child, qualifying relative) by $500
  • Add these amounts and enter the total in the right-hand column
  • Note – adding dependents here will decrease the amount of federal income tax withheld from your check

Step 4 – Other Adjustments

  • 4a can be used to add additional withholding amounts for income that won’t have withholdings (interest, dividends, retirement income)
  • 4b can be used to add additional deductions which will decrease the amount of federal income tax withheld
  • 4c can be used to add an additional amount to withhold each pay period.  This should include the calculated amount from the Multiple Jobs Worksheet, line 4.
    • Employees who wish to claim “exempt” can write “exempt” on this line to claim the exemption

Step 5 – Sign Here

  • The employee should sign and date the form

Employers are not required to obtain new Form W4s for employees who were hired prior to 2020.  However, new employees and employees who wish to update their withholding information must be provided with the 2020 version of the Form W4.  You can check out FAQs on the 2020 Form W-4, published by the IRS, for a full rundown of the most commonly asked questions about the form.

 

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