New W-4 form for 2020 eliminates those confusing ‘allowances’

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If you start a new job in 2020, the W-4 you’ll fill out will look a lot different from any one you completed for previous jobs. The IRS is working on rolling out a new W-4 form for next year that eliminates withholding allowances.

The redesign is supposed to make the form simpler to complete and easier for workers to accurately tell employers how much federal income tax to withhold from their paychecks. And eliminating allowances aligns with the suspension of personal exemptions, which was one of the major changes stemming from the 2017 Tax Cuts and Jobs Act.

Starting in 2020, workers completing a W-4 will need to use the updated form — whether it’s for a new a job, to account for a life change (such as marriage or having a baby), or simply to adjust their withholding amount. Otherwise, you won’t be required to complete a new W-4, assuming you already have a W-4 on file with your current employer.

The new W-4 form is technically still in draft, but the IRS says there will be no more substantive changes before it’s finalized in a few months.

Want to know more?

New W-4 — what’s being updated?

In the past, some taxpayers were confused by W-4 personal allowances. The old form even included a worksheet to help you calculate how many allowances you wanted to take. If you were mystified by allowances on the old W-4, you may embrace the five-step process that’s been drafted for the new W-4 form.

Step 1 is where you enter all your personal information, including your name, Social Security number, address and filing status. Steps 2 through 4 are optional, and you only have to complete them if they apply to you. Step 5 is where you sign the form.

If you have more than one job at a time or file jointly with a spouse who also works, you would complete Step 2, and complete Steps 3 and 4 for only one of those jobs (for accuracy, the IRS recommends completing steps 3 and 4 using your highest paying job).

In Step 3, you claim dependents and back the $2,000 per-child child tax credit or $500 for other dependents out of your withholding. Step 4 allows you to make other adjustments to your withholding, such as having tax withheld for other income or if you plan to itemize your deductions instead of taking the standard deduction.

You can view the W-4 draft form and the IRS FAQs about the revisions to the W-4 form online at IRS.gov.

Why does this matter?

Form W-4 tells employers how much federal income tax they should withhold from a worker’s paycheck. And accurately completing a W-4 form can help ensure you have the right amount of federal income tax withheld from your paychecks throughout the year.

If you have too little withheld from your paycheck during the tax year, you can end up owing tax (and possibly a penalty) come Tax Day. Withhold too much and you could get a refund — but remember, getting a tax refund means you essentially gave Uncle Sam an interest-free loan for a year.

What’s next?

A new W-4 is scheduled to roll out in 2020, so if the new year brings new work — or a change in your family or financial situation that requires adjusting your withholding — you’ll be using that form.

But you don’t have to wait until Jan. 1, 2020 to revisit your withholding and estimate your tax liability.

In addition to a new W-4 form, the IRS has also launched an updated Tax Withholding Estimator. The comprehensive withholding calculator walks you through the process of estimating your withholdings. The estimator …

  • Allows you to account for credits and deductions
  • Gives you an idea of whether you’ll owe or get a refund based on your current withholdings and the amount of tax you owe for the year
  • Offers guidance on what to do if you want to get a refund or would rather get the amount you owe as close to zero as possible when you file your federal income tax return