On September 20, 2018, the Internal Revenue Service (IRS) announced that the major revisions previously proposed to the 2019 Form W-4, Employee's Withholding Allowance Certificate, will be delayed to 2020. In August 2019, after releasing the second draft of the 2020 W-4, the IRS released the second draft of Publication 15-T, Federal Income Tax Withholding Methods, for 2020.
There are several changes coming to the W-4 for 2020
The 2020 W-4 will take a five-step approach for entering information
The taxpayer is now required to enter dollar amounts rather than simply entering the number of withholding allowances. Certain categories that were on prior forms have been eliminated or replaced.
The five-step approach will be:
- Enter personal information
- Account for multiple jobs
- Claim dependents
- Other adjustments (optional)
- Sign and date
Every employee must complete Steps 1 and 5 when submitting their new W-4. Only filling out Steps 1 and 5 will result in withholding based on the employee's standard deduction and tax rates with no other adjustments.
Steps 2 through 4 apply to the employee's personal or financial situation. The IRS states that withholding will more accurately reflect tax liability when data is entered in these steps.
A new line in the W-4 is asking employees to enter estimated nonwage income not subject to withholding. This estimate may include interest, dividends, and retirement income but not income from any other jobs. Currently, employees with nonwage income must convert such amounts to equivalent per-payroll additional amounts to withhold.
Although exemptions have gone away, the form allows for reducing the amount of withholding if the employee itemizes. Specifically, the form states: "If you expect to claim deductions other than the standard deduction and want to reduce your withholding, use the Deductions Worksheet on page 3 and enter the result here."
The 2020 W-4 has been renamed
The form is now called the Employee's Withholding Certificate. The word allowance has been removed from the title since employees may no longer claim withholding allowances.
Publication 15-T, Federal Income Tax Withholding Methods
This publication now includes separate computations for figuring withholding for employees who file the new 2020 Form W-4 in 2020. W-4s from prior years remain valid because there are no requirements from the IRS that the submission of a new Form W-4 to the employer is required.
Updated Tax Withholding Estimator
The IRS is advising that employees use the updated estimator when filling out their 2020 W-4 to help ensure the correct taxation.