IRS Releases “Final” Draft 2020 W-4Updated April 13, 2020

In August, 2019, the IRS posted an “early release” of the 2020 W-4 available to the payroll industry, knowing that this form may cause some disruption. The release of the 2020 W-4 comes as a result of the passage of the 2017 Tax Cuts and Jobs Act (TCJA). Subsequently, the IRS took a few swings at updating this form to be compatible with the changes in how individual federal income tax is calculated on form 1040 filed by taxpayers.

As a reminder, the TCJA:

  • Eliminated personal “exemptions”
  • Doubled the standard deduction
  • Increased child tax credits
  • Eliminated and/or restricted several itemized deductions
    • SALT (State and Local Tax)
    • Mortgage Interest
    • Charitable Contributions
    • Other Deductions (e.g. Un-reimbursed employee expenses and Tax prep fees)

The changes in how federal income tax is calculated needed to be factored into how the payroll industry calculates federal withholding on employee paychecks. Specifically, since personal exemptions were eliminated, the use of allowances on line 5 of the existing W-4 is inaccurate in calculating accurate withholding for employees to avoid large tax bills and refunds during tax filing season.

We have put together an in-depth breakdown of the new W-4

Step 1: Enter personal information

This section of the form resembles the prior form in that the employee completes name, SSN and filing status.

Draft 2020 Form W-4 Step 1

Step 2: Select whether “Multiple Jobs or Spouse Works” or

  • Use the estimator or
  • Complete 4(c) “Extra withholding”

The new Publication 15-T provides two sets of tax tables that is dependent upon whether or not the checkbox in 2(c) is marked.

Draft 2020 Form W-4 Step 2

Step 3: Claim Dependents (covers the child/dependent tax credits)

This step allows the employee to identify any child tax and/or dependent credits that would apply to their 1040 return.

Draft 2020 Form W-4 Step 3

Step 4: Optional

  • Step 4(a): Identify “Other income”
  • Step 4(b): Claim “Deductions” from income
  • Step 4(c): Identify “Extra withholding” (the old “Additional amount” on line 6)

This step likely requires the employee to use the Tax Withholding Estimator made available in August of 2019.

One big change is that there is no field allowing an employee to file “Exempt”. Employees should now hand write “Exempt” under box 4(c) to claim exempt status.

Form W-4 Step 4 Optional

Step 5: Sign the form

Whew, at least that step is easy!