The New Form W-4: What You Need To Know
The first thing you may notice about the new Form W-4 is the title. It's no longer the "Employee's Withholding Allowance Certificate" — the new title is the "Employee's Withholding Certificate" because withholding allowances are no longer used to calculate federal income tax withholding. So how does it work?
A 5-Step Model
Employees used to be able to reduce their federal income tax withholding by claiming allowances on their Form W-4. The more allowances they claimed, the lower their withholding amount. However, the 2020 Form W-4 removes that ability by taking the following five-step approach:
- Enter personal information, which includes a filing status section that now has a line for Head of Household.
- Specify multiple jobs or whether spouse works.
- Claim dependents.
- Make other adjustments, such as for retirement income, deductions other than the standard deduction and additional federal income tax to be withheld.
- Sign the form.
Although employees can no longer lower their withholding by taking allowances, they can reduce it by claiming dependents or using the Deductions Worksheet on Page 3 of the new Form W-4.
Exemption Line Removed
There's no dedicated line for claiming exemption from federal income tax withholding anymore. To claim exempt, employees must now write “Exempt” in the space under Step 4(c).
- Give all employees hired as of Jan. 1, 2020, a 2020 Form W-4 form to complete.
- Let current employees know about the 2020 Form W-4. They do not have to complete a new W-4 if they have no withholding adjustments for 2020.
- Keep using the most recently furnished Form W-4 for current employees who do not submit a 2020 Form W-4.
- Withhold federal income tax from wages based on single filing status with no other adjustments if a new employee hired in 2020 fails to submit a 2020 Form W-4.
Resources for Businesses and Employees
Publication 15-T for Employers. In previous years, the methods for determining federal income tax withholding were provided in IRS Publication 15 (Circular E). For 2020, however, the federal income tax withholding methods are included in IRS Publication 15-T. You can also use Publication 15-T to figure income tax withholding for pre-2020 Form W-4s.
Publication 15 (Circular E) for Employers. Although Publication 15 no longer contains the federal income tax withholding methods, it's still a vital tool for understanding your federal employment tax obligations — including those effectuated by the Tax Cuts and Jobs Act of 2017.
Publication 15-A for Employers. Publication 15-A expounds on the general information provided in Publication 15 and delivers more specialized guidance.
Income Tax Withholding Assistant for Employers. Managers can use this simple spreadsheet to manually calculate employees' federal income tax withholding based on their 2020 Form W-4s or earlier versions of the form.
Tax Withholding Estimator for Employees. This IRS app is designed to help employees fill out their 2020 Form W-4s so the right amount of federal income tax is withheld from their paychecks.
FAQs for Employees and Employers. The IRS has compiled a list of Frequently Asked Questions for both employees and employers. Consider sharing this resource with your employees.
Of course, your best bet is to consult a financial professional with any questions about your situation.