The Internal Revenue Service has released a final Form W-4 for use in 2020. A significant change for the 2020 form is that it does not have withholding allowances because employees may no longer claim personal exemptions or dependency exemptions. Previously, the value of a withholding allowance was tied to the amount of the personal exemption.
For the new form, the following five steps (as opposed to allowances) are completed by the employee to determine their withholding:
Step 1: Personal information (including marital status).
Step 2: Multiple jobs (employee), or whether the employee's spouse works. This step is completed if the employee holds more than one job at a time or is married filing jointly and their spouse also works. The correct amount of withholding depends on income earned from all of these jobs.
Steps 3 and 4: Claim dependents and (optional) other adjustments (specifically (a) other income that is not from jobs, (b) deductions, and (c) extra withholding). Steps 3 and 4(b) are completed on Form W-4 for only one job, and these steps are left blank for the other jobs. (Withholding is most accurate if an employee completes Steps 3 and 4(b) on the Form W-4 for the highest paying job.)
Step 5: Employee signature and date (signifying that all information is true and accurate under penalty of perjury).
Publication 15-T (still in draft form) assists employers in determining the amount of federal income tax to withhold from their employee's wages.
Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee's most recently submitted Form W-4.
Read about the Form W-4, read FAQs about the form, and read about Publication 15-T.
For more information, contact the Congruity team of professionals at: 844.247.4100
On November 6, 2019, the Internal Revenue Service (IRS) released Revenue Procedure 2019-44 announcing the following limit increases for 2020:
The phase-out ranges for 2020 are as follows:
The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.
Of note, the limit on annual contributions to an IRA remains at $6,000 and the additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.
Contact the Congruity team of professionals for more information at: 844.247.4100