2020 Form W-4 Explanation

• Required for all new employees completing a Federal W-4 form on or after Jan. 1, 2020.
• Employees needing to update their exempt status for 2020
• Existing employees are not required to complete a new form

• Withholding allowances are no longer used
• New form provides options for more accurate tax withholding
• New form is divided into 5 steps:
• Step 1 (personal information and filing status) and Step 5 (signature) are required
• Steps 2 - 4 may be used to establish a more accurate tax withholding

To claim ‘Exempt’ from withholding, individual should write ‘Exempt’ in the space below Step 4(c) and complete steps 1 and 5

Steps 2, 4a, and 4c if completed, will increase Federal tax withholding; completing Step 3 or 4b will decrease Federal tax withholding

• if you hold more than one job at a time or both you and your spouse have jobs (Step 2)
• If you have income from sources other than a job that is not subject to withholding (Step 4a)

• If you are eligible for income tax credits such as the child or other dependent tax credit (Step 3)
• If you are eligible for deductions other than the standard deduction (Step 4b)

• Per the IRS, Step 2 allows the employee to choose one of three different options for more accurate withholding, which include tradeoffs between accuracy, privacy and ease of use:
• Option 1 (Step 2a): Most accurate/private option – Use the Tax Withholding Estimator and enter additional amount on line 4c . Allows employee to identify the extra withholding amount to enter on line 4c without revealing additional jobs/income information to their employer.
• Option 2 (Step 2b): Uses Worksheet 1 on page 3 of the W-4 form to provide roughly accurate withholding without use of the online Tax Withholding Estimator – calculates additional amount to be entered on line 4c.
  • Note: If either option 1 or 2 are used and the pay changes for any of the jobs used in the calculation a new W-4 will need to be completed to have accurate withholding
• Option 3 (Step 2c): Easiest option – check box if only 2 jobs are held in household.
  • Least accurate and may result in overwithholding but generally will not result in underwithholding
  • Reveals to the employer that multiple jobs exist in the household

Individuals may consider using the estimator in the following scenarios:

• Expect to work only part of the year
• Have dividend, capital gain, or self-employment income or are subject to additional taxes
• Prefer most accurate withholding for a multiple job situation
• Prefer to limit information provided in steps 2 - 4 on the Form W-4 but do not want to sacrifice accuracy