The IRS has released the 2020 version of Form W-4, which looks significantly different than the previous version. Until 2020, Form W-4 hadn’t seen a major redesign since 1987. The form was redesigned to reflect changes in the federal tax code from the Tax Cuts and Jobs Act which took effect in 2018. The update, according to the IRS, “reduces the form’s complexity and increases the transparency and accuracy of the withholding system.”
The most significant difference is the lack of allowances, which were used to calculate withholdings. Instead, the new form consists of five steps. Steps 1 and 5 must be completed, while steps 2, 3, and 4 are optional. The steps are summarized as follows:
· Step 1: Personal information
· Step 2: To be completed if you have multiple jobs or a spouse that works
· Step 3: To be completed to claim tax credits for dependents
· Step 4: Other adjustments
o Amount of additional income such as interest, dividends, retirement
o Itemized deduction amount
o Extra withholding
· Step 5: Sign the form
The new Form W-4 is only required to be completed by those hired in 2020. It’s a good idea, however, to review your withholding annually to determine if adjustments should be made to reflect your current situation. The IRS has a Tax Withholding Estimator (www.irs.gov/W4App) to assist you with that determination. In order to use the estimator most effectively, it’s helpful to have your most recent pay stub and tax return handy.
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