Completing 2020 Form W-4

The IRS introduced a new W-4 for use in 2020.  All new employees hired after 2019 or employees hired prior to 2020 who want to adjust their withholding from paychecks dated January 1, 2020 or later must use the new form. 

It is important to complete Form W-4 correctly because this form tells your employer how much of federal income tax to withhold from your paycheck.  Too little and you will have to owe taxes at the end of the year.  Too much and you’ve basically made an interest free loan to the government.  

Step 1 – General Information

(a) Enter your name.
(b) Enter your social security number.
(c) Select the proper classification for yourself.  (Only check head of household if you are unmarried and pay more than half of the cost of keeping up a home for yourself and a qualifying individual.)

Step 2 – If you hold more than 1 job or are married and filing jointly and both spouses work

The purpose of step 2 is to tell your employer the proper tax rate to withhold taxes.  For example, you may have 6 jobs and get 6 W-2s, each that pay $10,000.  In reality you make $60,000 a year but each individual employer thinks you only make $10,000.  If you only make $10,000 per year, the tax rate at which your taxes should be withheld is much lower than the tax rate if you make $60,000 per year.  The same concept is true for 2 spouses working that file a joint tax return.  You and your spouse may each make $50,000 per year.  In total your household makes $100,000 but each employer only thinks that you make $50,000 so they are withholding at too low of a rate.

The most accurate way to complete this step is to go to irs.gov/W4App and anser the questions specific to your situation using the IRS estimator; however, you can use page 3 to calculate an estimated amount. 

If you choose the page 3 calculation instead of the IRS estimator, you will need to use the chart on page 4.  If you are married and have 2 spouses that work, find the higher paying job in the left column of the top table.  Then find the other spouse’s salary in the columns to the right of the table, note the amount at their intersection.   For example, if spouse A made $250,000 and spouse B made $50,000, the intersection is $10,390.  The $10,390 should be entered on line 1 under step 2(b) on page 3.  Then enter the number of times that you get paid in a year on line 3.  For example, if you get paid every other week, the amount on line 3 would be 26.  Then divide $10,390 by 26 to get $399.62 and enter on line 4.  The $399.62 also gets entered on line 4(c) under step 4 on page 1.  If you are single and have 2 jobs, you would follow the same process but using the second table on page 4 for Single or Married Filing Separately.

Step 3 – Children and dependents

Step 3 takes into account any credits to your taxes.

If you are single and make less than $200,000 or married filing jointly and make less than $400,000, enter your number of children under the age of 17 on the first line multiplied by $2,000.  If you have 2 children, the amount would be $4,000 (2 x $2,000).

The second line is for any other dependents that you may have, for example older parents that live with you. 

Step 4 – Additional tax withheld

Step 4, other income takes into account any other taxable income that you may receive that hasn't had taxes withheld.  For example, interest and dividends or retirement.  The additional tax amount helps so that you have enough taxes withheld to cover this income.  Enter the estimated amount of other income on line 4(a).  For example, $3,000 of interest and dividends.

Step 4, deductions are primarily for individuals that itemize on their tax return instead of using the standard deduction.  Itemized deductions include mortgage interest, property taxes, charitable contributions and medical expenses.  If you do not itemize, then you can skip this line.  (The itemized deduction for 2020 is $12,400 for single, $18,650 for head of household and $24,800 for married filing separately.)  The deductions worksheet on page 3 can be used to estimate the amount of your deductions.

Posted by: Carrie Minnich, CPA