Navigating the New W-4 Form
Starting a new job? Congrats – it’s a great feeling. You’ve made it through the interview process, and now it’s on to the onboarding paperwork. Don’t let the forms fill you with a sense of dread.
Trust us – there’s no need to worry as the Internal Revenue Service (IRS) has redesigned a new W-4 Form for 2020. Created in response to the Tax Cuts and Jobs Act (TCJA), this document is now updated and very different from W-4 forms of the past.
This form went into effect on January 1, 2020, and all employees hired after that date are required to submit this W-4 to claim their federal income tax withholdings. Read on to understand the latest changes.
What is a W-4 Form?
When you begin a new job, you will need to complete the IRS Form W-4, the Employee’s Withholding Allowance Certificate, before starting to work. The form asks for your name, Social Security number and address, and is also used to decide the amount of taxes your employer needs to withhold from your paycheck. Your specified amount is sent to the IRS, along with your social security number and contact information. Your employer then deducts this taxable amount from your paychecks towards the annual income tax bill due in April.
Where Can I Find It?
You can find and download the 2020 W-4 form here from the IRS website. It now consists of 4 pages:
Page 1: A general data sheet with your personal information and tax information. Once you complete the W-4 form, you will need to return only this page to your employer.
Page 2-3: Provides instructions on how to complete the form and includes the Multiple Jobs Worksheet, and Deductions Worksheet.
Page 4: This page has the withholding table for employees to use as a guide when completing Page 3.
With the new W-4, the 2017 Tax Cuts and Jobs Act eliminated the personal allowances area to align with the rest of the legislation. In its place, there are more fields for employees to complete and accurately reflect the tax credits and deductions available since 2018. This new change allows new employees to complete the form more straightforwardly. It also provides better information to their employers on the amount of taxes to withhold.
With the recent refresh, there is a new step 2 included in the W-4. This section allows for the employee to adjust taxable income if they have a side hustle or if their spouse is working. If you need to claim dependent exemptions, that now takes place in step 3. The new step 4 allows the taxpayer to account for other adjustments to taxable income and deductions. Need help with this area? The withholdings calculator from the IRS is a great tool.
How to Make Deductions and Adjustments
When reviewing page 3, you will locate the deductions and adjustments worksheet. The W-4 form does come with a guide (page 4). There is some math involved in this section as you estimate your adjustments and add up your anticipated deductions.
Due to TCJA legislation, you can no longer make some of the adjustments you used to make, like alimony, school, and charity donations. If you relocated to start this new job – your moving expenses no longer count.
Does Everyone Need to Complete the New Form?
No, the 2020 W-4 is only for employees hired after December 31, 2019 or for employees whose tax situation has changed. If you need to change your withholdings, you can do this at any time as your W-4 stays with the company, and the form is not sent directly to the IRS. That way, you can change your taxes if there is a marriage, adding a child to your family, adding a second job, or getting divorced, by completing a new W-4 with the human resources department.
Challenges Employers Face
As an employer, educate yourself on how to communicate these distinct changes to employees. Changes to the form might be confusing, and your new employees may request additional assistance. Be aware that while you want to accommodate your new employees, consider employer liability for providing advice concerning personal income taxes. If you have not updated your payroll system to account for the different changes to the data from W-4, now is the time to do that.
Ask For Help
Provide honest and accurate information as the form is a legal document – do not cheat on your W-4. If you’re not sure how to complete the new W-4, contact an accountant or a financial advisor to see if you should change your withholdings due to TCJA. It never hurts to double-check and receive guidance, so you don’t make a misstep to affect your finances.
Additionally, if you fail to submit a W-4 form, then your employer must withhold taxes at the highest rate – single and claiming no allowances – to stay compliant with the IRS. Make sure to sign the form, turn it into your HR department or supervisor, and enjoy your first day at your new job.
This new change now makes the hiring process a lot easier. If you are completing the new W-4 due to a new job or there are changes with your financial situation, know that this form can be achieved with ease due to the recent redesign. Complete the document honestly and correctly as the IRS requires all employees to pay their taxes to the government throughout the calendar year. If you find that you have too little taken out of your paycheck, you’ll end up with a bill in April. On the other hand, if you have too much taken out, you could be faced with a very tight budget each month and giving your hard-earned money to the government interest-free.