In 2020, the W-4 form changed to help individuals withhold federal income tax more accurately from their paychecks. Learn everything you need to know so you can update your W-4 with confidence.
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Whether you're filling out paperwork for a new job or got an email notification from HR, you might have noticed that the W-4 form changed from what you might have been used to. Your W-4 is what determines your federal income tax withholding, and making sure it's accurate is the first step in determining whether you get a tax refund or will owe taxes when you prepare your tax return.
The IRS made significant changes to the W-4 form in 2020 and the updated form should provide you the means to more accurately withhold federal income tax. We'll go over the changes and what you should know.
Depending on your circumstance, you might have under-withheld and owed money, or received a larger refund than usual when you filed your taxes. Ideally, Form W-4 should make it so you neither owe taxes nor get a refund when you file your tax return — which is what led to it being reworked.
The Tax Cuts and Jobs Act (TCJA) became law in late 2017 and significantly changed how the federal income tax system works. The TCJA made several changes, including
However, the new tax changes don't always work well with the previous version of Form W-4.
When these exemptions deductions were removed in the Tax Cuts and Jobs Act, the Form W-4 no longer estimated the correct amount that needed to be withheld from paychecks as well as it used to.
The first step the IRS implemented was to change the withholding tables. Employers use these tables along with the information on your Form W-4 to calculate federal income tax withholding.
The Form W-4 is now a full page instead of a half page, and yet it's still easier to understand. For starters, a lot of the basics have stayed the same.
In 2019 and years prior, Form W-4 only required you to input:
The new Form W-4 is a bit easier to understand because each section shows why adjustments are being made. There are now three main sections used to help determine your withholding. You only complete each section if it applies to your situation.
If you itemize deductions, or receive extra income from dividends or interest, you can use the new Form-W4 to make your withholding more accurate. Pay attention to your paycheck after your new Form W-4 takes effect to see if results are correct for your situation.
To begin with, you’ll need to add your personal information to the appropriate boxes. This includes your:
This section is for if you work multiple jobs at the same time or are Married Filing Jointly and both you and your spouse are employed. To be accurate, both spouses should fill out the new Form W-4 for each job.
The form lists three ways you can complete this section.
If you only work one job or you're filling out a Form W-4 for the highest paying job and you have dependents, you claim them here. This section accounts for the tax impact of the child tax credit and the other dependents credits.
Alternatively, if you’re working on the W-4 for the lower-paying of your multiple jobs, you should skip this section.
You can use other adjustments to make your withholding more accurate. In particular, this section offers three options.
First, you can add extra income from outside of your job, such as dividends or interest, that usually don't have withholding taken out of them.
Next, you can account for other deductions.
Finally, you can have more federal income tax withheld from each paycheck by adding extra withholding. You can use this to
As with Step 3, if you’re filling out this W-4 for the lower-paying of your multiple jobs, you should skip this section.
Those starting a new job will have to fill out a new Form W-4. You don't have to start a new job to fill out a Form W-4, though.
If you want your federal income tax withholding to be more accurate, you should fill out a new Form W-4. This will likely result in a change in your federal income tax withholding, which impacts the amount of your usual tax refund or the amount you usually owe. Ask your payroll or human resources department how to submit a new Form W-4.
If you don't feel the results are correct for your situation, make adjustments in the other adjustments section, submit a new Form W-4, and check the results on your paycheck after the adjustment takes effect.
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