If I have $20,000 in Interest income every year and I want to add that to my W4 so it get taxed, do I add the total amount $20,000? Does my companies payroll divide out the total amount by 26 (the number of paychecks per year) and use that amount per pay check? Or do i have to break it out $769 and add that to line 4a?
Yes, if you want to have additional tax withheld from your wages to cover the anticipated interest income, you can enter the entire amount for the year on Line 4a of Form W-2 and the withholding should be allocated among your paychecks over the year.
The instructions for line/step 4a state:
Enter in this step the total of your other estimated income for the year, if any. You shouldn’t include income from any jobs or self-employment. If you complete Step 4(a), you likely won’t have to make estimated tax payments for that income. If you prefer to pay estimated tax rather than having tax on other income withheld from your paycheck, see Form 1040-ES, Estimated Tax for Individuals.
In the alternative, you could make a direct payment to the IRS of the amount you expect to owe on the interest income, or ask the payer to withhold taxes on the interest.