How to Complete Form W4 - Federal Income Tax Withholding

The IRS released a new Form W-4 in December 2019. The first major redesign since 1987, it’s much different than any previous version. We put together the following tips and information to help you understand the changes and how to complete the revised Form W-4.

Form W-4 instructs employers on how much tax to withhold from an employee’s paycheck. Any employees beginning a new job, or current employees wishing to change their withholdings, are required to complete a Form W-4 for their employer.

Quick Tips for Completing Form W-4

Have your most recent pay stub (and your spouse's if you file jointly) and the previous year's tax return handy
Use the IRS Tax Withholding Estimator
Carefully read the instructions on the form
- Steps 1 and 5 are mandatory
- Steps 2, 3, and 4 are optional
It is not required for all employees to complete the revised W-4 form. Employees hired after 2019 and those who need to update their withholdings must use the "new" Form W-4.

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More About 2020 Form W-4 Updates

Revised per the Tax Cuts & Jobs Act of 2017, the "new" Form W-4 first introduced for 2020 is different. Really different.

What’s So Different About the 2020 W-4?

Gone are the numbers. No really. There are no longer any “allowances,” which were used to calculate tax withholding on the old W-4. Those “allowances” were based on personal exemptions, which are now unavailable under the current tax code.

Instead, the 2020 Form W-4 accounts for all sources of income as amounts to determine the correct tax withholding amount. These sources of income include multiple jobs, spouse’s income, self-employment, and even income from dividends and interest. It’s almost like a mini-tax return!

Why Did Form W-4 Change in 2020?

In 2017, the Tax Cuts & Jobs Act got rid of the dependency deduction and increased the standard deduction. All taxpayers saw these changes come to life in 2018 on their tax returns. While the IRS waited until now to update this form, this new Form W-4 reflects those changes to the federal tax code.

Impact on Workforce – The Employees!

If you are starting a new job, you will be required to complete this new Form W-4. Or, if you are a current employee and just want to update your withholding, you will be required to complete this new form.

The IRS has created an online estimator to help employees determine the most accurate amounts to withhold. You can access the IRS Tax Withholding Estimator online at www.irs.gov/W4App (you will need a copy of your most recent pay stub and tax return).

Impact on Business – The Employers!

Because the 2020 Form W-4 is significantly different from previous versions, communicating the changes to employees will be a challenge. As an employer, you must balance the desire to help your employees with the understanding that you should not be giving tax advice. This sample letter from the American Payroll Association does a great job explaining the 2020 Form W-4 changes that you can share with employees.

It will take more time for employees to complete this form. You should not expect employees to complete this form on their first day of work and in a short amount of time. Instead, you might consider sending this form ahead of time and allowing employees ample time to use the IRS Tax Withholding Estimator in order to accurately complete the Form W-4 for payroll set up.