Alert

Should I Complete a New Form W-4 for 2020?

December 20, 2019

Completing the 2020 Form W-4 is required for employees hired in 2020 or later, but is a good idea for all employees to be sure that income tax withholding is as accurate as possible.  The most accurate withholding will occur if one uses all five steps in completing the form, but only Step 1 and 5 on the 2020 Form W-4 are required.

The 2020 Form W-4 takes into account the fact that an employee (or an employee and spouse filing jointly) has more than one job and thus need higher withholding.  To figure out this additional withholding, an individual can use one of three options:  the IRS estimator, a worksheet or allowing your employer to make adjustments for an additional job.

In addition, the 2020 Form W-4 optional Step 3 adjusts for tax credits that may reduce withholding. The optional Step 4 on the 2020 Form W-4 also allows taxpayers to make adjustments for withholding per pay period, perhaps due to additional deductions or income and to request additional withholding. This will be helpful for those employees who are concerned that the supplemental wage withholding rate of 22%, often used by employers for supplemental wages such as income realized on option exercises and bonuses, is less than the total income taxes that will be required for the supplemental wages received. It is here that taxes for additional income, such as retirement income or self-employment income, can be taken into account and an indication that an employee is exempt from withholding is made.  Remember that any additional withholding requested in Step 4 is in addition to the withholding based on filing status and the standard deduction that is included in the tables.

An employee hired before 2020 is not required to submit a new form and, in that case, employers will use the Form W-4 previously submitted. Publication 15-T includes the new withholding tables, including amounts to be withheld if the employee uses the 2020 Form W-4 or a valid Form W-4 submitted to the employer earlier.  If an employee does not have a valid Form W-4 on file, the employer will withhold assuming a single filing status with no other adjustments.

While obtaining 2020 Forms W-4 for existing employees is not required, this extra administrative step will benefit employees by more accurately determining their required income tax withholding.

If you have any questions concerning these new rules, please contact Deborah Walker, National Director Compensation and Benefits, Cherry Bekaert LLP at dwalker@cbh.com or your Cherry Bekaert tax professional.