A Step-by-Step Guide to Filling Out 2020’s New W-4 Form

The new W-4 Form is coming. What you need to know.

The W-4 was designed to allow employers to correctly compute how much in federal income taxes to withhold from your paycheck. You’d indicate how many personal and dependent exemptions, as well as deductions you intended to claim on your taxes that year. You’d also chose between a married or single filing status.

The “Tax Cuts and Jobs Act” (TCJA) significantly changed federal taxes. Specifically, it eliminated many long-time deductions, including personal and dependent exemptions, and rendered the old withholding tables and worksheets obsolete. So, employers needed a more up-to-date way to calculate the amount of federal tax to withhold.

Since most Americans pre-pay federal income taxes through paycheck withholding, getting that amount right was a big deal. Withhold too much and employees take home less in their paycheck, even if they get a larger refund when they file. Withhold too little, and they take home more money, but get hit with a surprise tax bill when they file.

So, a new and easier to understand W-4 was born. Because the old W-4 Form didn’t work with the new tax laws.

For starters, there’s no longer a place to indicate how many personal and dependent exemptions an employee intends to claim since personal exemptions were eliminated from the tax code. Instead, the new W-4 is divided into five steps to help the employee figure out what their tax withholding should be.

Step 1. Provide personal information like name, address, and filing status such as Single, Head of Household, or Married Filing Jointly.

Step 2. If an employee has a second job, or if both spouses work, they can use the worksheets or the IRS calculator to determine the appropriate amount to enter here. The online calculator can be found at www.irs.gov/W4app

Step 3. This is a biggie. Here’s where you enter the amount of child tax credit or credit for other dependents. In previous years, you just entered the number of dependents and child tax credits weren’t considered in the withholding calculation.

Step 4. This is another big change. Here, you’d enter income not subject to withholding, such as interest and dividend income. It can also be used to request additional withholdings to help cover taxes from other types of income, such as self-employment.

Step 5. This is simply where the form is signed.

According to the IRS, the new form W-4 is designed to make withholding more accurate and transparent. And since taxes increase as income rises, reporting additional income from second jobs or dividends should help many people avoid getting an unwelcome tax bill in April.

But there’s a twist. While new employees have to submit a new Form W-4 starting on January 1, 2020, existing employees already have a W-4 on file. So, employers can continue to calculate withholding based on that information. However, because of changes in taxes and in the actual calculations employers use, that withholding may not be correct. So even though existing employees are not required to submit an updated W-4 like new employees, it’s a good financial decision if they do.

Of course, if something changes, a new baby or divorce, for instance, employees should make changes to their withholding. It’s always a good idea to keep the information on the W-4 up to date in order to avoid any big surprises on April 15.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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