2020 W-4 Changes to Be Aware of Before Starting Your Next Job

w-4

You are starting a new job this year, and, as usual, you will have plenty of paperwork to complete and decisions to make. One standard piece of business involves filling out your W-4, the IRS form that determines how much of your gross pay will be withheld to pay federal taxes for the coming year.

However, this time you will be looking at a new version of the Internal Revenue’s Form W-4, also known as the Employee’s Withholding Certificate 2020. This form replaces the 2019 W-4 version to comply better with the 2017 Tax Cuts and Jobs Act.

The intent of the new form is the same: help employees select the level of withholding that best fits your circumstances. Remember that too little withholding can lead to an oversized tax bill next April 15. This tax bill could also include penalties for under-withholding.

Too much withholding can result in a substantial tax refund. However, do you really want the government to hold extra portions of your hard-earned money all year long, interest-free, only to give it back to you next year?

Completing Your 2020 W-4

The look of the new W-4 is different than the older versions. There are five steps, although only Steps 1 and 5 are mandatory. Section 1 asks for personal information, including your tax filing status. Step 5 is where you put your signature.

Steps 2, 3, and 4 should be completed only if they apply to you. These sections ask for more specific information about multiple income sources, dependents, and more to help determine your appropriate level of withholding.

When you begin your new job in 2020, you can get a head start on your W-4 at home, where you have more time to work on your answers. You can find the IRS Tax Withholding Estimator software online that can help you complete the form correctly.                                                             

Completing Your W-4: Step-by-Step

Step 1: Personal Information

This part of the W-4 remains as before, just filling in information about you, your Social Security Number, and your address. The significant piece is checking how you plan to file your taxes, i.e.:

  • Single
  • Married filing jointly
  • Head of Household: you are unmarried and pay more than half of the support for yourself and qualified individual(s)

You may skip ahead to Step 5 if Steps 2, 3, or 4 do not apply to your situation.

STEP 2: Multiple Jobs or Your Spouse Works

This step should be completed if you will have more than one income source in your household. The additional income might be your second job, or your spouse is also working, and you file jointly.

In this case, you should use the IRS Withholding Estimator or the Multiple Jobs Worksheet to help estimate your total withholding levels. The Multiple Jobs Worksheet presents a table that cross-references the higher-earning job with the lower to create an estimated total withholding.

Alternatively, if you have two jobs, you can check the Box (c) on the W-4 for both employers, and the withholding will be calculated for you.

STEP 3: Claiming Dependents

If your earnings are under $200,000 for single filers or $400,000 for couples filing jointly, you may claim children under 17 years old as dependents. You enter the number of children times $2,000 each to earn the Child Tax Credit. Similarly, you can take a credit of $500 for other dependents for whom you provide over 50% of their support.

STEP 4: Other Adjustments

This section asks you to declare any other income you expect to receive. Adjustments may include interest, dividends, retirement disbursements, or other sources.

If you plan to itemize your deductions, Part (b) asks for an appropriate amount to represent those additional deductions for which you qualify. Itemized categories may include mortgage interest and taxes, charitable contributions, medical expenses above a certain level, local taxes, and more.

Part (c) 4 lets you request additional withholding over and above what will be your withholding calculation from the previous steps.

STEP 5: Your Signature and Date

You are done!

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