• Form W-4 was redesigned in 2020 to reduce complexity while increasing the accuracy of calculating withholding taxes.
  • There are new ways to determine your holdback amount, including an online IRS estimate tool.
  • Taxpayers whose life or filing has changed should review the information in their W-4.
  • The accuracy and clarity of this article has been reviewed by Lisa Niser, an expert on the Personal Finance Insider Tax Review Board.
  • View Personal Finance Insider’s Picks For The Best Tax Software »

If this is the first time this W-4 is completed in some time, you may notice changes in the form that tells your employer how much tax to withhold from your paycheck. The Internal Revenue Service redesigned it in 2020 to make things easier and more accurate. Although the underlying information is the same, the new W-4 “replaces complicated spreadsheets with simpler questions that make precise withholding easier for employees,” according to the IRS.

Getting the right amount of withholding tax is important as it can help you keep more money in your pocket by not paying too much and making sure you don’t have a high tax bill when tax season is approaching because you haven’t paid enough. Here’s what has changed in the W-4 and how to fill one up.

The new W-4 form

If you’re like most employees, you probably completed a W-4 form the last time you were hired at a new business. But it’s also wise to review it periodically as your income, personal circumstances, and filing status change.

The 2020 recast was to reflect changes to tax law made in 2017 by the Tax Cuts and Jobs Act. More specifically, taxpayers no longer claim personal or dependent exemptions, that is to say that the amount of withholding is no longer linked to these exemptions. The calculation of the withholding rate is done in another way.

“In order to reduce your withholding tax, you must now declare dependents or use the deduction worksheet,” says Josh Zimmelman, managing partner of Westwood Tax and Consulting.

The IRS says employees who provided a W-4 form to employers in years prior to 2020 do not need to complete the revamped W-4 form. Employers will continue to use information from the old W-4 forms to calculate withholding tax for the employee.

The main differences between the old W-4 form and the one for 2020 and beyond are steps 2-4 in the middle. These are the new sections (along with the associated worksheets) that taxpayers can use to accurately calculate the amount of withholding tax for a wide range of individual situations. You can ignore these parts if they do not apply.

How to complete a W-4 form

Step 1: Enter personal information

Screenshot of IRS W-4 form: Step 1 Enter personal information

Source: IRS

This step is pretty straightforward. Enter your name, address and social security number. Step 1 (c) is your filing status. You can choose your deposit status from one of the following three options:

  1. Single or married and filing separately
  2. Married and declaring jointly, or eligible widower (s)
  3. Head of household

This selection will determine the standard deduction and tax rates used when calculating your withholding tax. It doesn’t have to match what will be used on your actual tax return.

If none of the following scenarios apply to you, this is the only step you will need to take. Go to step 5 to sign and date, then submit the form to your employer.

Step 2: Several jobs or spouse works

Screenshot of IRS W-4 form: Step 2 Multiple employment or joint work

Source: IRS

The amount of income withheld depends on the amount of household money you earn. You can complete this section:

  • If you have more than one job
  • If you and your spouse are both working
  • If you are receiving a pension or other retirement income and have returned to work
  • If a stay-at-home parent returns to work
  • If you have self-employment income

You have three options to complete this section, which is different with the new form. You can:

  1. Use the IRS Withholding Estimator at www.irs.gov/w4app
  2. Use the Multitasking Worksheet on page 3 of Form W-4
  3. Just check the box if there are only two jobs in total

Step 3: Claim dependents

Screenshot of IRS W-4 form: Step 3 Claim dependents

Source: IRS

Add the number of dependents you can report on your tax return. To be eligible, your income must be less than $ 200,000 (or $ 400,000 if you are married and filing jointly). The child must be under 17 on December 31 and live with you for more than half of the year.

Each of these children should be eligible for the child tax credit. Therefore, calculating these credits in your withholding amount will reduce the amount of tax withheld. These tax credits are also refundable tax credits, which means that you could get more back than what was withheld by your employer.

If you have other dependents (such as an older child or dependent parent) living with you, you can claim a $ 500 tax credit for each of them.

Step 4: Other adjustments

Screenshot of IRS W-4 form: Step 4 Other adjustments

Source: IRS

Step 4 (a): If you have other income (other than employment income), it will go here. If you have retirement income, you will enter it on this line so that the amount withheld for your main source of income is correct.

Step 4 (b): If you plan to itemize the deductions and take more than the standard deduction amount, you will enter it here. This ensures that your employer will not withhold too much tax when you plan to claim these deductions.

Step 4 (c): If you have an additional amount that you want to deduct from your paycheck, it will go here. If you want a bigger refund, for example, you might want to withdraw more from your check. This amount is for each pay period. If you have a multiple work worksheet amount, you will include it on this row as well. Finally, this row can be used to make adjustments for other income or deductions when you don’t want to disclose this information to your employer.

Step 5: Sign, date and file with your employer

Screenshot of IRS W-4 form: Step 5 Sign, date and file with your employers

Source: IRS

You will sign and date it when you are finished. From there, your employer will take over and enter the appropriate information for the company name, your first date of employment, and the Employer Identification Number (EIN).

W-4 Worksheets

There are two new worksheets to help taxpayers estimate the appropriate amount of withholding tax. These are not filed with the IRS like the front page of W-4, but should be kept with your own records.

  • Step 2 (b) – Multi-task worksheet. The worksheet in Step 2 is one of three methods taxpayers can use to determine the amount of withholding tax when there are multiple jobs (the other two being the online withholding calculator of IRS and a box checked directly on Form W-4). Follow the instructions and use the tax table included on the worksheet to determine the amount of withholding. Enter the result on line 4 (c).
  • Step 4 (b) – Deduction worksheet. This worksheet tells taxpayers how to account for their expected deductions in the withholding amount. You will enter an amount for expected itemized deductions or even student loan interest, deductible IRA contributions, and certain other adjustments. You will take this amount and enter it on line 4 (b) of the form.

When should I complete a W-4?

While you may not need to complete the new W-4 form, it is a good idea to periodically review your circumstances and update the information when warranted.

“The W-4 forms should be reviewed annually for accuracy, but more importantly any time a taxpayer has a change in life or tax return,” says Mark Steber, director of tax information for Jackson Hewitt Tax Services.

Here are some examples of these instances:

  • A large balance owing or a refund on your previous tax return
  • A change in income
  • A promotion or a raise
  • A job change
  • A change in marriage or divorce filing status
  • A new dependent
  • A new parallel concert

There are other scenarios where you will want to see your W-4 again. Retirees who receive a pension and start working again, or a stay-at-home spouse who returns to work are examples of situations where you may need to adjust your withholding tax amount this year.

The financial report

A good amount of withholding tax allows you to keep more money in your pocket while making sure you have paid enough to avoid an underpayment penalty. If you are not sure whether the correct amount is taken from your paycheck, you can seek the advice of your tax professional or do it yourself with the new IRS Form W-4 worksheets.