The IRS recently released a new Form W-4 for 2020. This form looks very different from the previous Form W-4, and there are several important changes to be aware of.
Historically, Form W-4 utilized the amount of personal exemptions claimed by an employee to assist employers in determining how much to withhold from each paycheck. One of the many changes resulting from the Tax Cuts and Jobs Act of 2017 was the removal of personal exemptions. Although the IRS attempted to modify the 2018 and 2019 W-4 to account for the changes, many taxpayers found that their withholdings were no longer accurate. For some taxpayers with more complicated returns, large amounts due – or in some cases, large refunds – were seen once their tax returns were filed.
The purpose of Form W-4 is to assist taxpayers who receive wages in paying their tax throughout the year. Ideally, withholdings should be close to your total tax liability on your Form 1040. A large balance due or refund may indicate improper withholdings, as many taxpayers saw during the 2018 tax season.
Thus, the IRS decided to create a new Form W-4
to more accurately calculate employee withholdings. The new Form W-4 is split into the following five steps.