The IRS released a new W-4 tax form for 2020. Each new employee needs to complete a W-4 form to tell you how much, or little, they want withheld from each paycheck. Having too little withheld means employees will likely owe money when they file their taxes. If they have too much withheld then they will generally be owed a refund.
Existing employees who already have a W-4 on file are not required to complete a new one unless they want to change their withholdings.
What has changed?
The biggest change to the W-4 form is that there is no longer an “allowances” section. Employees no longer claim allowances to change their withholding. Instead, the new form attempts to determine all of their sources of income, as well as how many dependents they have to make their tax withholdings as precise as possible.
Are employees required to complete all steps?
Step 1 and Step 5 on the form are required for all employees who fill out the new form. Employees only need to fill out Steps 2 through 4 if they apply to them. Otherwise, all they need to do is provide their name, address, Social Security number and filing status, and sign and date the form. Done.
Step 1 is the employee’s personal information, such as their name and Social Security number. Step 2 asks about additional jobs and spouse’s income. Step 3 is for counting dependents. Step 4 is for other adjustments, such as extra withholding. Step 5 is for signing and dating the form.
There are three ways employees can complete Step 2:
- The easiest way will be to use the IRS's tax withholding estimator.
- Use the Multiple Jobs Worksheet, located on page three of Form W-4 and enter the result in Step 4(c). The worksheet is on page three of Form W-4. According to the IRS the worksheet should only be completed on one W-4 form and employees should only enter information for the highest paying job in order to end up with the most accurate withholding.
- If there are only two jobs in total, check the box in option C. Make sure to do the same on the W-4 for the other job as well. This option should only be used if both jobs have similar pay, otherwise more tax may be withheld than necessary.
In Step 3, employees claim dependents.
Step 3 is fairly self-explanatory. If their income will be $200,000 or less ($400,000 or less if married filing jointly), follow the steps listed on the Form.
As an example, let's say their household income is $150,000, they file single, they have one child under the age of 17, and their sister lives with them and they support her financially.
With this example, their total for Step 3 will be $2,500. This is because they have one qualifying child, so 1 x $2,000 = $2,000. They also have one other dependent, which gives them an additional $500. These add together like this: $2,000 + $500 = $2,500. Your employee would write $2500.00 in the box for Step 3.
Step 4 includes other adjustments.
If your employee has non-job income for which they would like to have tax withheld, follow the directions for Step 4(a). If they don’t want any additional taxes withheld, they need not complete that step.
Step 4(b): if your employee is NOT expecting to claim the standard deduction, they should use the Deductions Worksheet on Page 3 of the form. Most people will take the standard deduction.
Step 4(c) was already discussed above in Step 2(b) with regards to the Multiple Jobs Worksheet.
The last step is Step 5. All employees who fill out this new form must sign and date the form in order for it to be valid.
Voila! You now know how to complete the new Federal W-4 form.
Don’t forget, here in Oregon we have our very own State W-4 form, and all any employees who were hired after January 1, 2018 or have updated their withholdings since then should have both the State and Federal form on file.