The IRS introduced a new W-4 form effective January 1, 2020 that eliminated withholding allowances. The form was redesigned to allow taxpayers to make their own calculations, especially when taking into account multiple sources of income.
Employees who have furnished Form W-4 in any year before 2020 are not required to furnish a new form merely because of the redesign. However, with many employees surprised with either large tax bills or large refunds last year, now is a great time to revisit withholding. The IRS is stressing the importance of people who have more than one job at a time (such as families in which both spouses work) to adjust their withholding to avoid having too little money in taxes withheld.
Completing the New W-4 Form
The form is divided into five steps. The only two steps required for all employees are Step 1, where they enter personal information like name and filing status, and Step 5, where they sign the form.
If an employee only fills out Steps 1 and 5, his or her withholding will be computed based on their filing status’s standard deduction and tax rates, with no other adjustments.
However, for those who want to calculate more accurate withholding, let’s dive into how to complete those parts:
Step 2: Multiple Jobs or the Spouse Works
Step 2 only applies to those who: 1) hold more than one job, or 2) are married filing jointly with both spouses working.
Employees have several options for figuring out their withholding. They may:
- Use the Online Estimator
- Use the Multiple Jobs Worksheet
- Decide to check the box in Step 2 (c) and move on, if the spouses have similar rates of pay
If the employee decides to use the Multiple Jobs Worksheet, here are some examples that I provide for how to make the computation:
Example 1: Two Jobs, Married Couple with Different Pay
- Spouse 1 has the higher-paying job and is making $250,000 and Spouse 2 has the lower-paying job and is making $50,000.
- Look at the Married Filing Jointly or Qualifying Widow(er) table. The two salaries will intersect at $10,390 (see visual).
- Determine the number of pay periods. For biweekly, let’s use 26.
- Divide $10,390 by 26, which equals $399.62. The employee should write $399.62 in Step 4(c) Extra Withholding.
Example 2: Three Jobs; Single or Married Filing Separately
- Job 1 earns $100,000, Job 2 earns $40,000, and Job 3 earns $10,000.
- Look at the Single or Married Filing Separately table.
- The two highest paying jobs ($100,000 and $40,000) will intersect at $7,510 (see visual). Note that number.
- Next, add the two highest-paying jobs (Job 1 and Job 2) together to get $140,000; this now goes in the “Higher Paying Job” row. Then use the salary for the lowest-paying job (Job 3: $10,000) in the “Lower Paying Job” row. These will intersect at $3,830.
- Add $7,510 and $3,830 together to get $11,340.
- If paid biweekly, divide $11,340 by 26, which is $436.15. The employee should write this amount in Step 4(c) Extra Withholding.
Steps 3 and 4
In Steps 3 and 4, the employee can claim allowances for dependents and other optional adjustments, such as income from investments. These steps are fairly straightforward to understand.
Employee signs and dates the form.
Once you get the hang of using the new tables and worksheets, the new W-4 form should result in more accurate withholding for employees. If you need any help with a calculation or have a question about a specific situation, please give us a call. We’re happy to help.