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Investor’s column: New IRS W-4 forms are coming for 2020. Here’s what you need to know

Start a new job, fill out a W-4 form.

The classic IRS employee’s withholding allowance certificate controls the amount of tax your employer withholds from your paychecks. IRS form W-4 has always been hard to understand. Many workers avoid updating their withholding after filling one out.

The IRS is getting ready to introduce a new W-4 form for the tax year 2020. W-4 forms have always been complicated, but further IRS changes probably will make completing them even more frustrating.

So why is the IRS making the payroll withholding form more complicated? The IRS is trying to prevent under-withholding and reduce the likelihood of owing additional taxes.

The IRS intends to add more stringent steps to calculate withholding better. To avoid penalties, taxpayers should provide at least 90 percent of their tax liability for 2020 tax return or 100 percent of the prior year tax, 110 percent if an income has adjusted gross revenues above $150,000.

Adjusting withholding likely will require specific dollar amounts, not just changing your exemptions higher or lower. To be accurate, you’ll need to provide filing status, number of dependents, itemized deductions earnings from all jobs and investment income.

Now you will have to calculate or use an app for the extra amount you want to withhold for each pay period extra. Consider spousal income, investment income such as interest and dividends, and capital gains, too.

Jim G. Germer.jpg
Jim Germer is a CPA and financial adviser at Cetera Financial Specialists, LLC, in Bradenton.

“Although the final form W-4 will not post for a few months, there will be no further substantive changes,” the IRS said. “One of the primary reasons the IRS is releasing the drafts is so that this draft and the forthcoming draft Pub. 15-T can be used for programming payroll systems now.”

What changing? The new W-4 form, I believe, probably will look like a mini-tax return, and it incorporates changes from tax reform. There’s no more claiming allowances on form W-4 because exemptions no longer exist.

The new form makes it easier to show children under age 17. Under President Trump’s tax revisions, some tax credits figure into calculations for children and some older dependents.

Completing a W-4 encourages disclosing non-job income from investments such as interest and dividends, itemized deductions such as mortgage interest, charity and tax deductions, and expected tax credits.

Employees with multiple jobs will show all likely taxable wages for them and their spouse.

There will now be five steps to complete a W-4. You’ll almost need a CPA to calculate the form. If you only have one job and take the standard deduction, fill out section one. Start by entering personal information such as your filing status.

Interestingly, there are now unique tables to properly withhold wages for those using a head of household filing status.

Some of us will just fill out just section one. That’s if you anticipate one — and only one — job and use the new standard deduction. Include filing status and use revised withholding amounts.

Step two allows you to adjust withholding for multiple positions. Married couples, with only two jobs, will use the checkbox on line two for each job. Section three claims dependents for the appropriate child or other dependent credits. Section four computes other adjustments. That’s where you’ll enter income not subject to withholding, such as dividends.

Also, it’s expected, itemized deductions can be used to adjust withholding in section five; you’ll validate the form by signing. Use an app on the IRS for the correct amount of retention or use a worksheet for a rough estimate of proper retention.

The IRS usually advises employees to adjust and submit new W-4s yearly. However, most people don’t do this unless making changes for job changes or getting married.

New employees hired before 2020 will need to adjust withholding. In 2020, all new employees will have to use this new computational form. Old employees don’t have to complete new W-4s solely because of the redesign.

Last year, people groaned about tax reform affecting refund size. Withholding tables were adjusted, but these people didn’t adapt or fill out new W-4s.

Changes likely will allow you to reduce under-withholding. You’ll receive a portion of a tax refund with each paycheck, not have the government using the money until you receive the refund. Most people prefer getting a check for $1,600 on April 15 rather than an extra $30 a week.

Complexities about using zero or one exemptions, claiming yourself or not claiming yourself as an exemption were commonplace.

Now employer, IRS and payroll company apps likely will adjust withholding on our 2020 W-4s.

Jim Germer is a CPA and financial adviser at Cetera Financial Specialists, LLC, member FINRA/SIPC, located at 100 Third Ave. W., Suite 130, in Bradenton. Call 941-746-5600 or email

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