New 2020 W-4 Form
There’s a New Calculation in Tax Form Town: A Revised W-4
Revised by the IRS to comply with the income tax withholding requirements laid out in the Tax Cuts and Jobs Act (Pub. L. 115-97), the new 2020 Form W-4 bears little resemblance to its predecessor. Instead of withholding allowances to account for additional income, deductions, and tax credits, the new version includes lines where employees can enter those amounts directly, so anything that’s going to be withheld is calculated upfront.
“While the form is different, the IRS designed the withholding tables to work with a prior year form or the 2020 form. The IRS is not requiring all employees to complete a new form. However, the new form is required for all new hires in 2020 and for employees who have completed a Form W-4 before 2020 and want to make changes to their withholding in 2020,” according to American Payroll Association.
Not Out of the Tax Blue
So what prompted the change? It was most likely a result of complaints from tax payers in recent years. Instead of welcoming an expected tax return, a lot of people were shocked to learn that they in fact owed money when they filed their 2018 returns. While rates were reduced with the 2017 reformed, along with doubling the standard deduction, and an increased child credit—which lowered the overall tax bill for many people—the IRS also reduced the amount of tax withheld from wages in an effort to assimilate to the changes.
Seems the IRS overestimated their synchronization effort,and collected under par, so people didn’t have enough withheld from their paychecks to cover what they owed. Now things have been tweaked with this new form. What’s the biggest difference?
Going Forward
“The biggest change is that you don't use the W-4 form to claim withholding ‘allowances’ anymore. On the old W-4, if you claimed more allowances, less tax was withheld (so you got a bigger paycheck). If you claimed fewer allowances, more tax was withheld (so your paycheck shrank),”says Kiplinger. Continuing, “Instead of claiming allowances, workers now use the W-4 form to provide their employer with the information needed to determine the amount of income tax to withhold. You'll be asked to include things like your expected filing status, family income from other jobs, number of dependents, and tax deductions you plan to claim.”
What this form does is eliminates the vagueness of potential allowances so that employers know exactly how much to withhold along the way, ultimately avoiding any unnecessary surprises in April.