3 Feb by Rachel Picarelli

The IRS Updated Form W-4

The IRS has revised and updated the 2020 Form W-4, Employee’s Withholding Certificate. They chose to redesign Form W-4, disallowing the use of withholding allowances. A personal exemption has also been eliminated from tax years 2018 through 2025. This was a result of the Tax Cuts and Jobs Act that was put into place. The last year to use a personal exemption would have been the tax year 2017. The new Form W-4 has been released to the public as of December 5, 2019. The purpose of this Form is for your employer to input the correct amount of federal income tax to be withheld from your paycheck. The taxes will come out of each check that has been issued to you. A Pay period can vary from weekly to bi-weekly, semi-monthly or even a monthly schedule.

A new Form W-4 will have to be completed each time a change happens to your financial or personal situation. These events can include a new job, childbirth, marriage or buying a home. If you do not complete this form and instruct your employer to withhold the correct amount there are two ways that could end for you. If there is a little amount of taxes withheld there is a chance that you will owe tax when you go to file your return. You must keep in mind that if there is a tax liability due at the time of filing and it is not paid in full you will also accrue an additional amount of penalties and interest. On the contrary, if your employer withholds too much you will more than likely be due a refund.

Below are the complete steps you need to follow in order to fill out the 2020 Form W-4.

  • Step one is to choose your projected filing status for the upcoming year. Filing status can be Single, Married Filing Separately, Married Filing Jointly or Head of Household. Filing status can change from year to year, so it is best to update your situation yearly with your employer using Form W-4. Your filing status is used to determine the standard deduction and tax rates. In step one, you will also be able to fill out your name, social security number, and current address
  • Step two on Form W-4 will be used for two different purposes. The first use will be for anyone who will have more than one job at the same time. The second use is for taxpayers who are married filing jointly and both parties work. Option A in this step will precisely calculate the tax you need to have withheld. The tax will be computed by using the tax withholding estimator that can be found directly at www.irs.gov/W4App. Option B in this step will do the same action but will less accuracy. You will be asked to fill out the multiple jobs worksheet form which will also be labeled Step 2(b). If between you and your spouse, there are only two jobs for the entire year then you have the choice to check the box in option C. If you are choosing to check the box in step two, then you must do so on your spouse’s Form W-4 also. This will allow the standard deduction and tax rates to be split in half for each job in order to determine the withholding.
  • Step three on Form W-4 will be used to determine the amount of a child tax credit and any other tax credits for dependents you may claim on your tax return. In order for a dependent to qualify for the child tax credit, they must be under the age of 17 as of December 31, have a valid social security number and live with your for more than six months out of the whole year. Step three also gives you the option to add any other tax credits you may wish to utilize. Remember that when you start adding credits it will make your pay higher during the specific tax years but reduce the amount of refund you may get when it is time to file
  • Step four on Form W-4 will allow you to enter any other income you may have for the year. This can include income that you will be paid a 1099 for. Form 1099 income will not automatically withhold taxes from your pay. You will be required to make payments of your estimated tax during the entire year. If you chose to fill out the box in step 4(a) then you can get rid of the requirement to make estimated tax deposits. You will be allowing your employer to withhold an additional amount to cover that tax liability. Step 4(b) allows you to enter an added deduction amount. This figure is computed by using the deductions worksheet. The deductions worksheet can be found on the bottom half page of the multiple jobs worksheet. You will take the result, Line 5, and add it here. Step 4(c) will give you the option to provide any other tax amount you request to be taken out of your pay. The result of Line 4 in the Multiple Jobs Worksheet (Step 2(b)) is where you will find this figure.
  • Finally, every employee who fills out Form W-4 will be required to sign and date in Step 5. By signing you are acknowledging that “Under penalties of perjury, I declare that this certificate, to the best of my knowledge and belief, is true, correct, and complete.”

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