4 Key Things You Need to Know About the New 2020 IRS Form W-4 for Employee Withholding

You may or may not have heard that the IRS launched a newly redesigned Form W-4 used to adjust federal tax withholding, which is effective starting with the tax year 2020 (the taxes you file in 2021).

The IRS created the new Form W-4 Employee’s Withholding Certificate (formerly W-4 Withholding Allowance Certificate) to help taxpayers figure out their correct withholding. This change stemmed from tax law changes like reduced tax rates, changes to itemized deductions, increased Child Tax Credit, the new Other Dependent Credit, and the elimination of dependent and personal exemptions.

The IRS is not requiring all employees to complete the new 2020 Form W-4. Instead, they have ensured the federal withholding tables were designed to work with both the new version of the form and existing withholding calculations from prior years. The only employees required to fill out the form are new employees and employees who want to change their withholding.

Don’t worry about figuring out the details of the Form W-4 changes and how to calculate your 2020 W-4 withholding. TurboTax has you covered and just launched TurboTax Free Updated W-4 Withholding Calculator to help you easily estimate your withholding. Whether you want a bigger tax refund or smaller balance due at tax time or more money in your paycheck, TurboTax free W-4 withholding calculator helps you easily estimate your withholding and fill out Form W-4 to give to your employer.  Updated for 2020, simply enter your information related to your dependents, income, and valuable tax deductions and credits and the calculator will help you adjust your withholding and see how it affects your tax refund and your take-home pay on each paycheck.

Although TurboTax Updated W-4 Withholding Calculator helps you easily estimate your withholding here are highlights of four key changes to IRS 2020 Form W-4 :

  1. Elimination of Personal Withholding Allowances – One of the biggest changes on the redesigned W-4 form is the elimination of personal withholding allowances. Instead, the form uses a 5-step process and new Federal Income Tax Withholding Methods to determine actual withholdings. In the past, the value of withholding allowances was also tied to personal and dependent exemptions, but those exemptions were eliminated under tax reform.
  2. Focus on Dependents and Other Tax Credits – Step 3 of the form allows you to indicate that you are eligible for the Child Tax Credit and the Other Dependent Credit, if applicable. You can also include additional credits like education tax credits in this section to more accurately refine your withholding amount.
  3. Account for Additional Adjustments – Step 4 of the form is an optional section where you can: 
    1. Make adjustments for additional withholding if you have other income like interest, dividend, and retirement income 
    2. Reduce withholding in this section if you have deductions besides the standard deduction, like itemized deductions, and additional tax deductions, like student loan interest 
    3. Enter any additional income tax you would like withheld from each paycheck including any amounts that need adjustments because you or your spouse may have more than one job.
  4. Exemption Line is Removed – Although there is no longer a separate section to claim an exemption from withholding, you can still claim exemption from withholding by writing “Exempt” in the space below 4C.

Form W-4 is completed and submitted to your employer, so they know how much tax to withhold from your pay. Typically, you would file a new W-4 when your personal or financial situation changes. 

If you have no changes in your current situation you may not need to file the new IRS Form W-4. The IRS has ensured the federal withholding tables were designed to work with both the new version of the form and existing withholding calculations from prior years. If you are impacted by tax law changes, your personal situation or income changed, you started a new job, or you didn’t see the outcome you expected when you filed your 2019 taxes this year you should fill out the new W-4 form.

 

Don’t worry about knowing how to figure out your withholding, you can use TurboTax free W-4 withholding Calculator to easily estimate your withholding and fill out Form W-4.  If you have questions and used TurboTax Live to do your taxes this year, you can connect to a TurboTax Live CPA or Enrolled Agent with an average of 15 years of experience to get your questions answered about your tax situation, year round. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your return.

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