Q. Do I have to use the new W-4?
A. No. Your current W-4 can remain in place. You are not required to use the new W-4, although your employer may ask you to. Your employer will continue to compute withholding based on the form you previously submitted. However, if you wish to change your withholding, you will have to utilize the new W-4. Likewise, anyone hired in 2020 or later will be required to use the new form. Failure to fill out a W-4 will result in being classified as Single with no adjustments—the maximum that can be withheld, and likely way too much!
Q. What happened to allowances?
A. Allowances have been replaced by a new five-step process created to be more accurate. The IRS has updated its Tax Withholding Estimator, which is designed to guide taxpayers through the process of accurately estimating their withholdings. This calculator helps you account for credits and deductions, predict a tax refund or amount owed and provides guidance on aligning your withholding as closely as possible with your actual tax obligation.
Q. What if my spouse works or I have a second job?
A. As it always has been, your tax liability is based on your combined pay from all sources, including second jobs and a spouse's income if you file jointly. Additional tax (and potentially penalties as well) may be due at the time of filing if your withholding is not sufficient to meet your tax obligation. You may want to make adjustments to your withholding in order to reflect your spouse’s income or your additional income. The new form offers a choice of three different options to make needed withholding adjustments, which involve tradeoffs between accuracy, privacy and ease of use. Option 1 allows you to most accurately withhold, while not revealing a second job to your employer.
Q. What if I don’t want to report certain investment or retirement income?
A. You can choose to pay estimated tax on income from retirement and investments on form 1040-ES rather than having additional withholding taken from your paycheck to cover these. If you do want to have tax for this income withheld from your paycheck, you can either report the income on line 4a of the new W-4, or use the Tax Withholding Estimator to calculate the additional tax and then enter that amount on line 4c without having to report the income to your employer. You also have the opportunity to have withholding taken separately from retirement income (such as IRAs, 401(k)s and Social Security), which in some instances is mandatory.
Q. Is there a resource to help me figure out my withholding?
A. Yes, the IRS provides an online calculator to help you achieve maximum accuracy in determining your estimated withholding. For those who wish to provide limited information on Steps 2–4 to protect their privacy, using the calculator affords both confidentiality and precision.
1FAQs on the draft 2020 Form W-4, Page last reviewed or updated August 14, 2019, Internal Revenue Service, https://www.irs.gov/newsroom/faqs-on-the-draft-2020-form-w-4
Updated for tax year 2019