Form W-4 is an important tax form for both employers and employees because it dictates withholding amounts on employee paychecks. Accurately completing Form W-4 can prevent employees from having a large balance due at tax time or over-paying taxes throughout the year.
In mid-December 2019, the IRS released a final version of the new Form W-4 for tax year 2020. While the old version did a fine job calculating withholding amounts, this version of the form has additional questions to make calculated withholdings more exact, helping to make sure paychecks throughout the year are more accurate.
To make this form more accurate than its predecessor, there are new questions for employees to answer. Here’s our breakdown for how to approach the 2020 Form W-4, as well as guidance to help you answer questions that your employees may ask.
Who fills out the 2020 Form W-4?
You may be wondering if you need to have employees fill out this new Form W-4. It depends on the following criteria:
- The answer is no if: You hired employees in 2019 or earlier and they filled out a W-4. You do not need to have those employees fill out a new Form W-4 just because of the redesign.
- The answer is yes if: These employees are paid for the first time on or after January 1, 2020. They will need to complete the 2020 W-4. If your employees hired before 2020 need to change their withholding certificate for some reason (e.g., they have a life-changing event, filing for tax-exempt status, etc.) starting on January 1, 2020, they will fill out the 2020 W-4.
How to complete the 2020 Form W-4
As an employer, you shouldn’t offer advice on what withholding calculations your employees declare. However, because this form is new and more in depth than the old Form W-4, you’re bound to receive questions. We’ll break down the new sections so you know how to help your employees navigate the new form. If you’d like additional resources about the 2020 W-4, you can go here, a resource from the IRS website.
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Form W-4 overview
The new Form W-4 is broken up into five steps.
- Personal information
- Multiple jobs or spouse work
- Other adjustments
Step 1 is required for all employees, while Steps 2 and 3 should be filled out only if they apply to your employee’s personal situation. Step 4 is optional. Any steps that don’t apply to your employee should be skipped for a more accurate withholding calculation.
This step requires employees to fill out information about themselves such as their name, address, and Social Security number (SSN). The name should match the name that is printed on their Social Security card.
The filing status (box 1(c)) will determine the standard deduction and tax rates that are used to compute the withholding. Employees should report whatever is accurate for them for that tax year. If their status changes (e.g., they get married), they can fill out a new Form W-4.
This step is optional and should only be filled out if:
- The employee has a second job.
- The employee has a spouse who works and they are filing taxes jointly.
There are three options for completing this step listed on the Form W-4.
- Option A uses the IRS’s estimator.
- Option B provides a rough estimate of your withholding.
- Option C is for filing jointly with a spouse.
This step is to calculate child tax credit or credit for other dependents. To be a dependent, the child must be 17 or younger as of December 31, 2020, and any other dependents must live with the employee for half the year. In general, including dependents in this step will result in the employees’ paychecks being larger and would lower any refund they might receive.
This step is for any other adjustments employees would like to make to their withholding calculation. Each box on this step is specific:
- a: If the employee has income from sources other than working jobs (gifts, investments, etc.) they can have the taxes they estimate to pay on that income withheld from their paycheck. They can specify that amount in this box.
- b: If the employee is planning to claim deductions, they can use the deductions worksheet on page three of Form W-4 to find the correct number to report in this box.
- c: Any additional money they want withheld each pay period can be claimed here.
Once completed, your employee will sign and you as the employer will complete the form by adding your name, address, date of employment for this employee, and your EIN.
What to do with a completed 2020 Form W-4
Employers need to keep the completed Form W-4 for their records for each employee that they pay. You will also enter the withholding amount into your payroll processor so the correct funds can be withheld and paid to your employee.