Employees fill out Form W-4, formally titled “Employee’s Withholding Certificate,” upon being hired to inform employers of how much tax to withhold from each paycheck. The employer uses the W-4 to calculate certain payroll taxes, and remits the taxes to the IRS and the state on the employee’s behalf.
As a result of the Tax Cuts and Job Act passed in 2017, the IRS has a new W-4 form for the 2020 tax year. It is important to note that you do not have to fill out the new W-4 form if you already have one on file with your employer, nor do you have to fill out a new W-4 every year.
But if you change jobs in 2020, or want to adjust your withholdings at your existing job, you’ll need to fill out the new W-4. Either way, it’s a great excuse to review your withholdings.
The W-4 form also comes with a couple of worksheets that will help you figure out your withholdings, but here are a few tips:
1. The 2020 version of form W-4 does away with asking people to choose a number of allowances. Instead, you provide certain dollar estimates for the payroll system to use. While this is “simpler” and reflects the elimination of allowances in calculating tax, it does take some getting used to, especially if you are one of those individuals that liked to over withhold taxes in order to avoid owing or get a larger tax return.
- If you’re single and have multiple jobs or you’re married, filing jointly and both work, remember these things:
- You typically have to have a W-4 on file for each job.
- For the highest paying job’s W-4, fill out steps 2 to 4(b) of the W-4. Leave those steps blank on the W-4s for the other jobs.
2. If you’re married and filing jointly, and you both earn about the same amount, you can check a checkbox indicating as much. The trick: Both spouses need to do that on each of their W-4s.
3. If you are exempt from withholding, write “exempt” in the space below step 4(c). You still need to complete steps 1 and 5. Also, you’ll need to submit a new W-4 every year if you plan to keep claiming exemption from withholding.
4. On the 2020 W-4, you can select the Head of Household filing status. That wasn’t an option on the 2019 W-4. If you file as head of household, you may want to consider filling out the 2020 W-4 if you want the amount of taxes withheld from your pay to more accurately align with your tax liability.
5. If you don’t want to reveal to your employer that you have a second job, or you don’t want to reveal to your employer that you get income from other non-job sources, you have a few options:
- On line 4(c), instruct your employer to withhold an extra amount of tax from your paycheck.
- Don’t factor the extra income into your W-4. Instead of having the tax come directly out of your paycheck, send estimated quarterly tax payments to the IRS yourself instead.
Finally, all this discussion has been focused on the Federal W-4, as the Tax Cuts and Jobs Act only concerned Federal taxation. While you take the time to review your Federal Withholding it is always a good time to review your State withholding as well (if you are subject to state income tax).
Check with your employer to complete a new W-4 or find the 2020 W-4 form at www.IRS.gov/W4.
Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA. The CTCS Group is focused on providing HR Leadership, Behavioral Assessments, and Consulting to help small businesses grow and thrive. You can subscribe to this blog or request a free consultation at www.thectcsgroup.com.
Disclaimer: The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant. Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.