The IRS has issued the final version of the revised Form W-4 for 2020.[1]  The new Form W-4 is meant to more accurately estimate the proper amount of withholdings from an employee’s paycheck following the changes made by 2017’s Tax Cuts and Jobs Act.  

Note that the form is significantly different from its predecessor, which will likely lead to some confusion on the part of employees regarding how they should fill out the form. The new form eliminates the concept of withholding allowances.

The full form can be found at https://www.irs.gov/pub/irs-pdf/fw4.pdf

The form encourages employees to skip to Step 5, which is the signature block, and have withholdings based solely on their filing status expected to be used on their tax return unless the following situations apply to the employee:

• The employee has multiple jobs or the employee’s spouse works (which obviously is a fairly common situation);

• The employee has dependents (and expects income to be below the level at which the dependent credits phase out); or

• The employee:

  • Has other income that is from other than jobs;

  • Expects to itemize deductions rather than claim the standard deduction; or

  • The employee simply wants to have an additional amount withheld from his/her paycheck beyond what is calculated based on the withholding schedules/tables.

Taxpayers with multiple jobs are offered three options to deal with their withholding adjustments.  The taxpayer can use the IRS’s withholding estimator at https://www.irs.gov/W4App for the most accurate withholding in this situation.  Alternatively, the taxpayer can complete the Multiple Jobs Worksheet found on page 3 of Form W-4, consulting tables found on page 4 of Form W-4.

The final option to deal with multiple jobs is to check a box on Form W-4 if there are only two jobs.  The IRS notes that this will only arrive at the proper result if the income from the two jobs are about the same.  If that is not true, this option will result in excess withholding.

Those with dependents who expect to have income below the level at which the credits begin to phase-out simply compute the expected dependent credits for the year.

Those that expect to claim itemized deductions rather than the standard deduction use the deductions worksheet also found on page 4 of the Form W-4.

While employees who are not changing jobs do not have to fill in a new Form W-4 for 2020, doing so will lead to a more accurate level of withholding.  Of course, if an employee had intentionally been overwithholding in the past to obtain a large refund the following April, achieving the same result will require a different approach than simply leaving off allowances.

Without getting into whether having a large refund due is a good idea, the reality is that such a result is strongly preferred by a large portion of the population, including those using professional tax advisers.

[1] Form W-4, December 4, 2019, https://www.irs.gov/pub/irs-pdf/fw4.pdf (retrieved December 6, 2019)