If you are starting a new job in 2020 or want to change your federal withholding, you will be using a newly designed Form W4. For years, one would adjust their “withholding allowances”. There are no withholding allowances to determine for the new Employee’s Withholding Certificate (W-4). The IRS has issued drafts of Publications 15 and 15-T, as of this writing. Additional information and instructions are to be expected. In reviewing the draft publications, we offer the following tips and information as you navigate this new form.
2020 W-4 is not required for employees hired prior to 2020
Employees who were hired prior to 2020 are not required to complete a 2020 W-4. The previously filed W-4 may still be used. If an employee did not provide a W-4 to their employer, the employer is instructed to withhold federal taxes at the Single rate. If withholding at the Single rate would result in a significant over-withholding, you will want to submit a Form W-4 to your employer.
Minimum Option for completing 2020 W-4
At a minimum, Step 1 and Step 5 on the form are required. If you do not complete Steps 1 and 5, or you do not submit Form W-4 to your employer, your employer is instructed to withhold at the Single or Married filing separately rate schedule. Steps 1 and 5 basically involve providing your name, social security number, address, filing status, and signature.
Options Available in step 2 2020 W-4
Step 2 applies if you have more than one job or you have a working spouse. 2(a) of Step 2 directs you to the online calculator to estimate your taxes. See information about the calculator below. I would suggest that you use the calculator. Option 2(b) has you calculate the additional tax needed to cover multiple jobs. This can be more easily done on the calculator.
Step 3 for those with dependents
For those with children or other dependents, Step 3 should be completed. However, if you are using the calculator, any tax credits for dependents will have been factored into the estimator, so you don’t want to factor these in twice.
Step 4 for those with additional income and deductions
Step 4 is used to adjust your withholding from employment wages to cover taxable income from other sources or for tax deductions that exceed the standard deduction. Remember, this information is going to your employer, so you may not want to reveal that much information to your employer.
This tool can be found at www.irs.gov/W4App. No personal information, such as name, social security number, or date of birth is required or asked for. This tool does ask a series of questions about your anticipated employment and tax information, such as: filing status; number of times paid during the year; income to-date; withholding to-date; retirement contributions and other pre-tax fringe benefits; investment income; itemized deductions if not using the standard deduction; expected credits; etc. Be prepared to have this information at your fingertips if using the calculator. The results are expressed on a Your Results page that you can print. It will provide: Expected tax withholding; Anticipated tax obligation; Estimated under payment (over payment)
2020 W-4 Only Applies to Employees
If you have self-employment earnings from contract labor, the W-4 does not apply to you. You will most likely need to pay estimated tax payments.
In my opinion, it is still going to be a challenge to get your withholding where you want it.
Best advice is to keep an eye on your withholding early on in the year, project where you think you will be for the total year, and submit a new W-4 if you find that the withholding is going to leave you significantly short or overpaid.
If you are interested in learning more about what tax planning opportunities apply to you, please contact us so we can discuss.
Contact me today if you have questions or comments.
Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc.