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.
