The 4 changes you should know about the redesigned 2020 IRS Form W-4

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We are sure amid the pandemic, you might have missed hearing about the newly redesigned W-4 Form released by the IRS. W2 Forms are used to adjust income tax withholdings, and the newly announced form is considered to be effective starting tax year 2020 and applicable to be filled while filing taxes in 2021. 

The new W-4 Form, Employee’s Withholding Certificate, which was formerly known as W-4 Withholding Allowance Certificate, is designed by the IRS to help confused taxpayers about the exact amount of their withholding. 

The IRS has not made it mandatory for all employees to complete the new 2020 Form W-4 and have instead ensured that the federal withholding tables and calculations work for both versions of the form seamlessly. You would need to fill out the new form only if you are a new employee or someone who wants to change their withholding

The updated version just needs you to fill out information related to your dependents, income, tax deductions, and credits and leave the rest to the Withholding Calculator. The Withholding Calculator adjusts your withholding and checks how it affects your tax refund and your take-home income. 

Let’s have a look at the four new highlights of the new W-4 Withholding Form.

Elimination of Personal Withholding Allowances

One of the significant changes in the redesigned W-4 form is the elimination of Personal Withholding Allowances. In place of this, the form follows a 5-step process and new federal income withholding methods to calculate your actual withholding. Previously, the withholding allowance value was proportional to personal and dependent exemptions, but these exemptions are revoked under this tax reform. 

Focus on Dependents and Other Tax Credits

Step 3 of the newly redesigned form allows you to show that you are eligible for Child Tax Credit and other Dependent Credits, if applicable in your case. The form also gives you a place to include other credits such as Education Tax Credits in this particular section to more succinctly chalk out your withholding amount. 

Account for Additional Adjustments

Section 4 of the W-4 Form is optional and allows the following:-

  1. If you have other sources of income like interest, dividends, retirement incomes, then you can make adjustments for additional withholding.
  2. If you have deductions apart from standard deductions like itemized deductions or additional tax deductions like a student loan, etc. then you can reduce withholding in this section.
  3. If you or your spouse have more than one job and want additional income tax to be withheld from your every paycheck. 

Exemption Line is Removed 

The new form has no separate section to claim exemption from withholdings. You can still claim it if you would like by writing “Exempt” in the space given below 4C.

The completed W-4 Form is submitted with your employer so that they are aware of how much amount they need to withhold from your paycheck every month. In usual cases, you would need to resubmit this form if your financial or personal situation changes. 

How to know if you need to fill out the new w-4 Form?

You would need to fill out the redesigned Form W-4 if:

  1. You are impacted by tax law changes
  2. Your personal situation or income changes 
  3. You start a new job
  4. The expected outcome of 2019 return is different than you expected

Conclusion

In most cases, you would be needed to fill out the redesigned W-4 form while filing the 2020 tax year returns. Having this information is essential to know how much income taxes an employer can withhold from your paycheck and also manage the withholding amount as per your comfort. In case you wish to understand more about income tax withholdings or have any other tax-related query, then you can get in touch with your MyTaxFiler expert at C19Grants@mytaxfiler.com. 

Published on 5/8/2020

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