Updates to Tax Form W-4

The IRS recently updated Form W-4, the federal tax withholding form. Here is a look at some of the most significant changes in the 2020 Form W-4. 

Simple design and clear questions

Most changes in the new Form W-4 are design-related. The form still calculates tax withholdings using the same information, but it is now easier for employees to understand and complete. Simple, straightforward questions have replaced the previous “worksheet” design. Steps 2-4 are now clearly labeled as “Multiple Jobs or Spouse Works,” “Claim Dependents,” and “Other Adjustments,” respectively. This allows employees to easily see which steps relate to them and which steps they can skip, allowing for faster and more accurate completion. 

No more withholding allowances

A noticeable difference from previous versions of the form is the absence of withholding allowances for personal exemptions. Instead of calculating the number of personal and dependent exemptions, employees can now answer simple personal questions in steps 2-4. 

Multiple jobs

Step 2, titled “Multiple Jobs or Spouse Works,” gives employees three options to accurately calculate their withholdings if they have additional jobs or a working spouse. They can use the withholdings estimator on the IRS website, use the optional worksheet on page three of the form, or check a box if the two jobs provide similar income. Using the withholdings estimator on the IRS website is the recommended option for the highest accuracy.

Claim Dependents

In Step 3, employees are instructed to multiply the number of children under age 17 by $2,000. Then, they multiply the number of other dependents by $500. The sum of the two calculations is entered on the third line. This process is more straightforward than that of the previous Form W-4, which used personal and dependent exemptions to calculate withholdings and used terminology unclear to many employees.

Other Adjustments

In Step 3, employees can enter information about other income, itemized deductions, or additional withholdings. The new form clarifies that this step is optional and directs employees to worksheets at the end of the form for more information.

Overall, the new W-4 tax form is more streamlined and easier for employees to understand. This is good news for tax professionals because when your clients have more accurate withholdings, tax preparation will be easier for you come tax season! To stay up to date on changes to other tax forms, take a look at what’s new in the 2020 Form 1040.