The New W-4

The IRS released the second draft of the 2020 W-4 in mid-August. It's also said that the final form will not vary significantly from this draft.

Since withholding allowances are suspended for the foreseeable future, the IRS removed the word "Allowance” from the title of the form and the lines on the form on which employees can indicate them. Instead, the draft is built on five "steps.” Employees with the simplest tax situation—single, one job, no tax dependents, no other income or deductions—need only complete Steps 1 and 5. Steps 1 and 5 are the only mandatory steps.

Step 1: Enter Personal Information

Similar to the 2019 W-4, employees enter their names, addresses and tax filing status.

What's new: The draft eliminates the checkbox for married, withhold at the single rate, but adds a checkbox for heads of households. However, married couples can still check the box in Step 1c for single, married filing separately (even if they're joint filers) if they want to increase their withholding, since there's no mandate that employees change their W-4 status once they get married. Divorce is different: Couples who divorce must refile their W-4s within 10 days, if they were claiming married status.

Step 2: Multiple Jobs or Spouse Works

This step is optional for employees to complete.

Employees may account for up to two jobs (either their own second job or their spouse's job) by checking the box in this step. By checking this box, employees will increase their withholding on a pay period basis by about 50%.

Step 3: Claim Dependents

This step is optional for employees to complete.

Employees who choose to take advantage of child and dependent care credits and other credits (e.g., the education credit) may complete this step. This is an annual reduction in employees' tax liability for the year, and ultimately, their pay period withholding. Warning: The figures in Step 3 are geared toward claiming dependent credits. Employees who want to claim other tax credits should estimate the value of those credits.

Step 4: (optional) Other Adjustments

Employees account for other income, like capital gains, on Line 4a and other deductions on Line 4b. Employees increase the annual amount of wages subject to withholding by the amount shown in Line 4a and decrease the annual amount of wages subject to withholding by the amount shown in Line 4b.

Employees indicate any additional withholding to you on Line 4c. Currently, employees indicate additional withholding on Line 6.

Employees may claim an exemption from withholding by writing the word Exempt underneath Line 4c. Currently, employee write the word Exempt on Line 7 to claim an exemption form withholding.

Step 5: Sign here

Employees sign the form under penalties of perjury. Employees also date the form.