the 2020 W-4 form with "NEW FORM" stamped over it

Were you taken by surprise when you filed your 2018 tax return? If so, you weren’t alone. The Tax Cuts and Jobs Act (TCJA) of 2017 caused quite a shakeup for most taxpayers. As people began filing their taxes in 2018, much talk was made about the variance in refunds (or tax bills owed). Most people quickly realized their withholdings needed adjustment to coincide with the elimination of personal exemptions.

Flash forward to 2020 and the Internal Revenue Service (IRS) has released a new W-4 and withholding calculator to help taxpayers remedy their withholding. The new form is simplified to “reduce the form’s complexity and increase the transparency and accuracy of the withholding system,” according to the IRS. It’s the first overhaul of Form W-4 in more than three decades.

How is the new W-4 form different?

At first glance, the new W-4 may look more complex than its predecessor. But while there are a few more questions, there’s relative ease in answering them. It’s best looked at in four sections:

  • This part of the form is the same minus a question about total number of allowances, which is no longer valid due to the TCJA.
  • This section asks about working status and, if married, the working status of your spouse. It’s meant to give a greater approximation of withholding.
  • Instead of calculating allowances, the new W-4 helps taxpayers calculate dollar amounts. It’s a simple three-step question.
  • This section asks for other income, deductions and extra withholdings to provide the most accurate information for taxpayers.

Form W-4 itself is still a single page; however, there is an additional worksheet for taxpayers with multiple jobs or additional adjustments. The document also comes with a convenient Multiple Jobs Matrix.

About the New Withholding Calculator

The new withholding calculator is meant to be a comprehensive reference tool for completing a new W-4 in the event of multiple jobs or a working spouse. It asks a series of questions regarding taxpayer filing status, income and withholding, adjustments, deductions and tax credits.

Taxpayers should use the withholding calculator as a checkup, to gauge their current withholdings versus appropriate withholdings. It’s also an important tool to use after a life-changing event that may impact your tax filing, such as the birth of a child, marriage or the purchase of a home.

Who should fill out the new form and why?

All taxpayers should consider using the withholding calculator and/or submitting a new Form W-4 if they haven’t adjusted withholdings since the passing of the TCJA. Checking their withholding and filling out a new W-4 should give them a more precise withholding, so they can avoid tax penalties due to underpayment. Conversely, it may also help taxpayers who are currently overpaying see more money in their paycheck!

For those planning on updating their W-4, the earlier the better. Updating early in the year spreads any adjustments out over a longer period of time throughout the year. Updating after filing a tax return in April is also a smart idea, since income data and prior-year tax information are readily available. (People starting a new job in 2020 will fill out a new W-4 by default as part of the payroll onboarding process.)

For more information about the new W-4 or how it may impact your status as a taxpayer, contact the expert tax CPAs and accountants at James Moore. We’ll help you understand the new withholdings process and make sure yours are accurate.

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