Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. If too little is withheld, you will generally owe tax when you file your tax return and may owe a penalty. If too much is withheld, you will generally be due a refund.


Are you having the right amount of taxes withheld?

Whenever a new employee is hired, ensuring the employee completes Form W-4 needs to be one of the first administrative priorities. While the IRS recommends employees submit a new W-4 each year, most employees only review their W-4 or make adjustments when they are experiencing a life-changing event, such as getting married or having kids.

Nonetheless, since the Tax Cuts and Jobs Act was passed in December 2017, there are changes that affect federal withholding. As such, the IRS is urging everyone to double-check his or her W-4 withholding amounts to confirm accuracy.

What is a W-4?

Before delving into the tax reform changes, it is important to understand the purpose of the W-4. Form W-4 instructs employers how much tax to withhold from each paycheck: the employee fills out the W-4, the employer uses the W-4 to calculate income taxes and remits the taxes to the IRS and the state on behalf of the employee

The amount your employer withholds from your paycheck largely depends on what you put on your Form W-4 when you started your job. Take note of the following:

    • Form W-4 asks about your marital status, dependents, and other factors to help you calculate the number of withholding allowances to claim. As you claim more allowances, your employer withholds less tax out of your paycheck.
    • The information you put on your W-4 funnels through withholding tables. Your company’s payroll department uses these withholding tables to calculate exactly how much federal and state income tax to withhold.
    • You can change your W-4 at any time – just download a blank W-4 from the IRS, fill it out, and give it to your human resources or payroll team.

Accurately filling out the W-4 form allows employees to avoid a large tax bill when April rolls around. They can also avoid overpaying taxes, so they have more money available throughout the year.


Did the tax cut reform change the 2019 W-4?

Initially, the IRS planned to release a 2019 W-4 to incorporate the tax law changes, pursuant to the Tax Cuts and Jobs Act (TCJA). The TCJA introduced a number of changes affecting nearly all taxpayers’ returns including:

  • Increased standard deductions
  • Eliminated personal deductions
  • Increased child tax credits
  • Limited or discontinued itemized deductions
  • Additional credits for dependents
  • Updated tax rates and brackets

After reviewing the 2019 W-4 early draft, tax professional believed it was unnecessary and created a substantial risk of taxpayers claiming the wrong allowances. Moreover, they felt it required taxpayers to predict a number of tax-related items that are traditionally difficult to foresee. Because of this feedback, the IRS postponed making changes until 2020.

So, what has changed on Form W-4 for 2020?

In December of 2019, the IRS released the long-awaited final version of the 2020 Form W-4, retitled “Employee’s Withholding Certificate,” which included major revisions intended to make accurate income tax withholding easier for employees starting in 2020. When the IRS released the final version of the 2020 Form W-4, it stated that the following are key points for employers to note:

    • All new employees hired as of January 1, 2020, must complete the new form.
    • Current employees are not required to complete a new form but can choose to adjust their withholding based on the new form.
    • Any adjustments made after January 1, 2020, must use the new form.
    • Employers can still compute withholding based on information from employees’ most recently submitted Form W-4 if employees choose not to adjust their withholding using the revised form.

The 2020 Form W-4 consists of a single page, followed by instructions, worksheets, and tables. In lieu of withholding allowances, the new W-4 includes a process with five possible steps for declaring additional income, so employees can adjust their withholding with varying levels of accuracy, privacy, and ease of use.

The five steps are:

Step 1. Enter personal information.

Step 2. Indicate multiple jobs or if spouse works.

Step 3. Claim dependents.

Step 4. Make other adjustments including for:

    • Investment and retirement income.
    •  Deductions other than the standard deduction.
    • Any extra tax withholding per pay period.

Step 5. Sign the form.

If a newly hired employee in 2020 doesn’t complete a 2020 Form W-4, the employer instructions state that employers should treat the employee as a single filer with no other adjustments. As before, the employee’s tax liability is based on combined income from all sources. This includes second jobs, investment income, and a spouse’s earnings. Moreover, it is important to note that additional tax may be due at the time of filing if withholding is not sufficient to meet tax obligations.

Essentially, the IRS’s revisions allow employees to simply enter their full-year expected deductions over the standard deduction amount by foregoing the complicated calculations.

Be proactive in reducing your tax bill by ensuring that your W-4 accurately reflects the proper withholding amount. Call Onyx Tax today!