The IRS released the 2020 Form W-4 in December, which replaced the familiar method of withholding allowances. Rather than list a withholding number (e.g., zero, one, two), employees now provide requested cost estimates for children and other dependents, as applicable.
Many employees are confused by the change to the well-known withholding method, but the form explains new steps in detail. Encourage confused employees to read the second page of the form thoroughly for a better understanding. The document is comprised of five steps; steps one and five are required, while steps two through four are optional, but completion could prevent a tax obligation.
To ease the transition to the new withholding procedure, the IRS created a free tax withholding estimator, which clarifies withholdings for complex job situations, such as seasonal employment or working multiple jobs. Employees can access this tool at irs.gov/W4App. Before using the tool, employees should gather recent pay statements (including spousal and other income sources, if applicable) and their most recent income tax return.
The form also added an additional marital status, which is Head of Household. Employees would check this status if they are unmarried, have paid more than half of the costs of keeping a home for the year, and have a qualified dependent who lives in the home for more than half the year.
Employees who already have a W-4 on file at their current job do not need to fill out the new Form W-4 unless they want to adjust their 2020 withholdings. While new employees adjust to these changes, allow them extra time to understand and complete the form privately on their start date.