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The 2020 W-4 Form: What Happens When the Solution Creates More Problems

Form W-4 is used by employees to determine how much federal income tax should be withheld from their paycheck each pay period. Recently, the IRS revised the form due to tax law changes that went into effect in 2018.

The old form, which asked you to report a number of withholding allowances, has been replaced by a very complicated form that requests additional information regarding income and deductions of employees and their spouse.

At the end of December, the IRS issued a new Form W-4 for use in 2020, along with a lengthy list of 20 FAQs.

The objective of the new W-4 was to address an underpayment issue faced by many taxpayers when they filed their 2018 tax returns.

After reviewing the new form, the three pages of instructions and the 20 FAQs, our view is the form is needlessly complex and confusing, particularly for a married couple. This confusion is bound to create more problems than it was ever intended to solve.

The good news is that the IRS isn’t requiring all employees to complete the new form for 2020. Employers may ask their employees to fill out a new form, but employees are not required to do so if they were hired prior to 2020. However, getting hired for a new job in 2020, will require use of the new form. It's also the form an employee would use to proactively change their withholding for 2020.

Absent a job change, our advice is to use the new form only if you feel you need to increase or decrease your withholding. In fact, we recommend holding off until you file your 2019 Form 1040 to determine the gap between the tax you owed for 2019 compared to how much was withheld. That would indicate the need for a change.

On January 14th, in response to criticism about the new W-4, the IRS released an improved Tax Withholding Estimator. Not only does the Estimator help with the calculations, it also gives much-needed specific guidance on how to fill out the W-4. You can access the online Estimator, hosted on the IRS website at the following link:

IRS Tax Withholding Estimator

We stand ready to assist with your questions.

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