The IRS has redesigned Form W-4, which is completed and submitted to your employer so they know how much tax to withhold from your pay. The new form is effective starting with the tax year 2020 (the taxes you will file in 2021).
Typically, you would file a new W-4 when your personal or financial situation changes. If you have a simple tax situation (W-2 income and claim the standard deduction), you are not required to file the new IRS Form W-4.
However, you should file the new Form W-4 with your employer if:
- You are impacted by tax law changes
- Your personal situation has changed such as you started a new job, you got married, had a new addition to the family
- You didn't see the outcome you expected when you filed your 2019 taxes this year
Here are the 5 key changes you need to know about the redesigned Form W-4:
- Elimination of personal withholding allowances. One of the biggest changes is the elimination of personal withholding allowances. Now, the form uses a 5-step process and new Federal Income Tax Withholding Method to determine actual withholdings.
- New multiple jobs worksheet. New sections have been added to allow for adjustments relating to multiple jobs in a household. If you choose the option in Step 2(b) and complete the worksheet provided for the highest paying job, your withholding will be more accurate.
- Focus on dependents and other tax credits. Step 3 of the form now allows you to indicate your eligibility for the Child Tax Credit and the Other Dependent Credit if applicable. You can also include additional credits like education tax credits in this section.
- Account for additional adjustments. Step 4 of the form is an optional section where you can:
- Make adjustments for additional withholding if you have other income like interest, dividend, and retirement income.
- Reduce withholding in this section if your itemized deductions are greater than the standard deduction amount. Or, if you have additional tax deductions such as student loan interest.
- Enter any additional income tax you would like withheld from each paycheck for tax situations, including multiple jobs and/or if your spouse also works.
- Exemption line is removed. Although there is no longer a separate section to claim an exemption from withholding, you can still claim exemption from withholding by writing “Exempt” in the space below 4C.
If you have questions and used TurboTax Live to do your taxes this year, you can connect to a TurboTax Live tax expert with an average 15 years-experience to get your questions answered about your tax situation, year-round. TurboTax Live tax experts are available in English and Spanish.