Contributors: Joseph Quinn, Rachelle Burnham, Paula DePlanche, Sarah Scheffer
The Tax Cuts and Jobs Act (TCJA) has prompted multiple legislative and regulatory tax changes. The reform has even impacted documentation protocol. In early December 2019, the IRS announced a redesigned 2020 Form W-4. The form modifications are designed to better incorporate the changes enacted by the TCJA.
Understanding the Current 2020 W-4 Form
The good news? Employees who have already filled out a W-4 form with your company don’t have to fill out a new one, unless you want to make changes to your current withholding. However, when starting a new job, employees will have to complete a 2020 W-4 form, which can be downloaded from the IRS site.
The new form is now divided into five steps. However, for most employees, only two steps are required:
- Step 1: Personal information, including name and filing status
- Step 5: Signature
Employees should only fill out Steps 2-4 if they are applicable (detailed below) to help ensure that final withholding matches liability. Employees who opt only to fill out Steps 1 and 5 will have their withholding based on the standard deduction of their filing status, with no other adjustments made.
Who Should Increase Withholdings?
Under the new form, there are some specific financial situations where taxpayers may want to increase withholdings, such as:
- Employees who hold more than one job at a time (Step 2)
- Employees who also have a spouse that works (Step 2)
- Employees who generate income from sources beyond jobs or self-employment that is not subject to withholding. (Step 4(a)).
Not making these withholdings may result in having to pay additional taxes when filing a return.
Who Should Decrease Holdings?
Of course, there are always circumstances that may warrant a decrease in holdings. Some examples include:
- Employees who are eligible for various income tax credits, including the child tax or dependent credit (Step 3)
- Employees who are eligible for deductions beyond the basic standard deduction:
- Itemized deductions
- IRA contribution deductions
- Student loan interest deductions
Contact Leone, McDonnell and Roberts Today
Navigating through the new 2020 Form W-4 can prove challenging. We’re here to help. Contact Leone, McDonnell and Roberts today to consult with a member of our accounting team and get the answers you need.