After the IRS’s first attempt at revising Form W-4 to take into account the changes in Tax Cuts and Jobs Act was withdrawn after facing criticism the resulting form was too complex, the IRS has returned with another draft Form W-4. The new draft form will try again to take into account the substantial changes found in the Tax Cuts and Jobs Act in a concise form to help employees arrive at a proper amount of withholding. (“IRS, Treasury unveil proposed W-4 design for 2020,” IR-2019-98, IRS website, May 31, 2019)[1]

The new W-4 does away with the concept of withholding allowances entirely, since personal exemptions no longer a “central feature of the tax code” in the words of the news release.  Rather the form will attempt to provide information that the employer will use to arrive at a withholding number.

The proposed single page form comes along with a page of instructions, a page containing two worksheets, and a page containing tables that are used to compute adjustments when there are multiple jobs held by the taxpayer(s).  The most common situation that will lead to the use of tables on page 4 is when each spouse in a married couple has a job that will lead to a W-2 at year end.

Taxpayers are taken through a four-step process on the Form W-4.  The form begins with the taxpayer’s personal information and their expected filing status.  If a taxpayer only expects to report wage income from a single job, does not expect to itemize, claim dependents or have additional income/deductions they want to factor in the withholding they simply sign the form after checking the expected filing status.  

If there is more than one job that will report income on a Form W-2, the taxpayer is lead to Step 2.  That steps gives the employee a number of options:

• Use the calculator at www.irs.gov/W4App which the employee is told will arrive at the most accurate withholding;

• Use Worksheet 1 on page 3 of the W-4 document.  That will produce an additional withholding amount that the taxpayer will enter on line 4c; or

• If there are only two jobs, check a box in Step 2.  This box should be checked on the Form W-4 for both jobs.  The form warns that this will likely lead to having excess tax withheld, but will also mean the taxpayers likely won’t have too little tax withheld (at least based on the two jobs).

Step 3 is only to be completed for one job in the household, with the best results occurring if this portion is filled in for the highest paying job.  The taxpayer enters the amount of other income he/she wants to have taxes withheld for on line 4a.  For deductions, the taxpayer is directed to Worksheet 2 on page 3.  That worksheet principally helps determine if the taxpayer will end up being able to itemize, as well as adjusting for any deductions allowed even where the taxpayer does not itemize (such as deductible IRA contributions).

Finally, as was noted earlier, line 4c contains any additional withholding the taxpayer is requesting, either due to the two job calculation on Worksheet 1 or because the taxpayer otherwise has determined there should be additional withholding.

What we do not know at this point is how employers will take the information provided on those lines and use them to arrive at a withholding amount from the employee’s paycheck.  The IRS news release indicates the agency “anticipates the related instructions for employers will be released in the next few weeks for comment as well.”[2]

The release indicates the IRS expects to release a “near final” second draft of the 2020 in mid-to-late July, with final form scheduled to be issued in November.  The IRS is accepting comments on this draft for 30 days to make additional improvements on this draft to arrive at the planned July second draft.

At the same time as the draft was issued, the IRS published a list of 20 frequently asked questions regarding the draft form on its website.[3]  The FAQ is an attempt to provide employees with answers to the questions they are likely to raise when they begin to try and use the form.  It also offers some explanation of what happens when employees use the various options available on the form.

[1] https://www.irs.gov/newsroom/irs-treasury-unveil-proposed-w-4-design-for-2020, site accessed May 31, 2019.

[2] Ibid

[3] “FAQs on the early release of the 2020 Form W-4,” IRS website, https://www.irs.gov/newsroom/faqs-on-the-early-release-of-the-2020-form-w-4, web page retrieved May 31, 2019