The goal of this update is to enable employees to better estimate withholding throughout the year, resulting in higher net paychecks (and reduced refunds). The new W-4 is formulated with straightforward questions that enable employees to more accurately determine withholding.
Some of the changes to the form:
- No More Allowances. The concept of withholding allowances such as Married-3 no longer exists. The TCJA eliminated the traditional exemptions for taxpayers and dependents.
- New Filing Status. There are now three filing status options: Single, Married, and Head of Household (new)
- Multiple Jobs. Employee can account for multiple jobs. The form provides three methods on how to accomplish this, with the most accurate method utilizing the Withholding Estimator.
- Employees can claim dependents eligible for the Child Tax Credit. This is to counteract the loss of the exemptions.
- Employees can include other items that impact the withholding tax, such as income and deductions not included in the employee's gross wages.
Important points to note:
- Effective January 1st 2020, all new hires will need to complete the new 2020 W-4 form.
- Effective January 1st 2020, existing employees changing their W-4 (i.e. change in marital status), must use the new 2020 W-4 form.
- Employees who have submitted a W-4 form prior to 1/1/2020 are not required to submit a new form (if they are not making changes). Employers will continue to compute withholding based on the information using the employee's most recent W-4.
- Once an employee uses the new 2020 W-4, the employee cannot revert to the old form.
- Employees who claim exempt and therefore are required to submit a new W-4 annually (by Feb 15th), must use the new form to continue claiming exempt.