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Form W-4

IRS posts second 2020 Form W-4 draft; says no future substantive changes

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Draft 2020 Form W-4, Employee’s Withholding Certificate

IRS has posted a second draft of 2020 Form W-4, Employee’s Withholding Certificate. IRS has also announced that the new form does not change the computation of withholding contained in the first draft and that there will be no substantive changes when the final version of the form is published. IRS has also provided information regarding Publication 15-T (Federal Income Tax Withholding Methods).

Background—Form W-4, generally. The previous version of Form W-4 calculated a taxpayer’s income tax withholding using a withholding allowance based on the personal exemption amount. In 2017, the Tax Cuts and Jobs Act (P.L. 115-97, 12/22/2017) suspended personal exemptions and substantially increased the standard deduction. The mismatch between the old Form W-4 and the new tax law has caused some taxpayers to be over- or under-withheld.

To assist taxpayers with calculating their withholding, while waiting for the new W-4, IRS created a website that taxpayers can use to compute withholding. IRS has recently issued a new version of that website, which it now calls the Tax Withholding Estimator. See IRS replaces Withholding Calculator with Tax Withholding Estimator.

Background—previous draft of 2020 Form W-4.  On May 31, 2019, IRS issued a draft of Form W-4 for 2020. That draft implemented the changes made by the Tax Cuts and Jobs Act. The redesigned form no longer used the concept of withholding allowances tied to the personal exemption. See IRS issues draft 2020 Form W-4.

IRS issues second draft 2020 Form W-4.  IRS has now posted the second draft 2020 Form W-4. IRS says it is providing this second version of the 2020 form now so that the programming of payroll systems can begin.

IRS explains that the computation of withholding has not changed from the first draft 2020 Form W-4. IRS expects the final version 2020 Form W-4 to be issued in the late-fall 2019. IRS adds that although the final version will not be issued for a few months, there will be no further substantive changes.

Changes contained in the second draft. The second draft changes the title of the form by removing the word “allowance.” The concept of withholding allowances, which was previously tied to the amount of the personal exemption, is no longer being used.

Some other small adjustments include changing the name of Step 2 from “Account for Multiple Jobs” to “Multiple Jobs or Spouse Works.” This step is for employees who hold multiple jobs at the same time or are married filing jointly and the employee and his/her spouse both work.

There is also a change for claiming exemption from federal income tax withholding for 2020. On the first draft, employees claiming such an exemption would write the word “Exempt” in box 4(d) of Step 4 “Other Adjustments (optional).” The second draft removes box 4(d) and instructs employees claiming exempt to write “Exempt” in box 4(c) of Step 4.

Publication 15-T. IRS expects the second draft of new Publication 15-T (Federal Income Tax Withholding Methods) to be issued in mid-August 2019. The first draft was issued in early June 2019 and contains three sections to aid employers in determining federal income tax withholding. This second draft will expand on the first draft, including providing separate computations for figuring withholding for employees who file a 2020 Form W-4 in 2020 and for those who file a 2019 or earlier Form W-4.

References: For computation of wage withholding see, FTC 2d/FIN ¶H-4220United States Tax Reporter ¶34,024.01.

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