2020 Federal W4 A Completely New Form Purpose

2020 Federal W-4: A Completely New Form

Purpose • Calculate income tax withholding more accurately • Important because over-withholding needlessly decreases paychecks, while under-withholding generates tax due on annual returns

5 Steps 1) Personal Information 2) Multiple Jobs or Spouse Who Works 3) Claim Dependents 4) Other Adjustments 5) Sign & Date

Step 1: Personal Information • • Name SSN Address Filing Status • • • Single or Married Filing Separately (Nonresidents always check this box) Married Filing Jointly Head of Household (We do not advise on eligibility)

Step 2: Multiple Jobs or Spouse Works § Only Complete this step if: § Employee holds more than 1 job (think multiple employers) § OR § Married Filing Jointly AND spouse also works § § Three ways to complete step 2 IRS recommends Step 2(a) for accuracy and privacy Step 2(b) is like 2(a), but less precise Step 2(c) is known as “checkbox withholding”

Step 2(a): IRS Estimator • • • www. irs. gov/W 4 App May produce an amount to be entered into Step 3 AND Step 4 (a) – (c) The IRS strongly encourages use of this redesigned tool It requires some serious work; think tax return, not W-4 • Need most recent pay check and most recent tax return Output is an extra withholding amount; enter into line 4(c) on the W-4 corresponding to the highest paid job only Concept: Calibrate withholding based upon all relevant data

Step 2(b): Multiple Jobs Worksheet • Pg. 3 of the form (Multiple Jobs Worksheet) • Concept: Calibrate withholding based upon household income rather than income from only the job associated with the W-4 • References Tax Table on pg. 4 (intersection of multiple jobs) • Output is an extra withholding amount; enter into line 4(c) on the W-4 corresponding to the highest paying job only

Step 2(c): Checkbox Withholding • It is a checkbox • If one spouse checks it, the other one should too • Effect: the standard deduction and tax brackets are cut in half for each job in order to calculate withholding (i. e. it makes you look single for withholding purposes; compare to “single, but withholding at a higher rate” • It is only recommended for spouses with similar income

Note on Steps 3, 4(a), and 4(b) • Should only be completed on the W-4 corresponding to the highest paid job • If entered onto multiple household W-4 s, the items will be counted multiple times, which will result in inaccurate withholding

Step 3: Claim Dependents • A calculation of anticipated deductions • Amount entered on line 3 will reduce taxable income used to calculate withholding amounts • We do not advise as to the definitions of qualifying children, dependents, or other tax credits associated with Step 3 (but see: form W-4, pg. 2, Specific Instructions to Step 3)

Step 4: Other Adjustments • 4(a): Other income, such as interest, dividends, and retirement income; does not include self-employment income • 4(b): Deductions Worksheet (pg. 3), projected deductions above the standard deduction amount (itemized deductions; student loan interest) • 4(c): Extra Withholding Amount: amount per pay period

Step 5: Sign & Date

Exemption from Withholding • Must meet 2 conditions (reference instructions): • • • Had no federal income tax liability in 2019 Expect to have no federal income tax liability in 2020 Write “Exempt” on space below Step 4(c); complete only Steps 1(a), 1(b) & 5

Nonresident Taxpayers • Only complete steps 1 & 5 • 1(c) should always be checked “single or married filing separately” • Write “nonresident” in space below 4(c)

Summary of Amounts Entered • Line 3: A reduction to taxable income • Line 4(a): An increase to taxable income • Line 4(b): A reduction to taxable income • Line 4(c): An increase to tax withheld • If all are blank, withholding is figured on a standard table with only withholding status from Step 1 as an input variable, unless: • Box 2(c) is checked, in which case “checkbox withholding” is applied

Resources • Form W-4: https: //www. irs. gov/pub/irs-pdf/fw 4. pdf • https: //www. irs. gov/individuals/tax-withholding-estimator • https: //www. irs. gov/forms-pubs/about-form-w-4 • https: //www. irs. gov/newsroom/faqs-on-the-2020 -form-w-4 • 2020 Pub. 15 -T: https: //www. irs. gov/pub/irs-dft/p 15 t--dft. pdf • https: //www. irs. gov/businesses/small-businesses-self-employed/income-tax -withholding-assistant-for-employers