New 2020 Form W-4

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Invest_Wisely
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Joined: Tue Jan 08, 2019 10:15 am

New 2020 Form W-4

Post by Invest_Wisely »

I believe my wife and I have too much withheld from our regular paychecks for federal taxes. My question is how to correct this using the new 2020 Form W-4.

I consulted IRS Publication 15-T (https://www.irs.gov/pub/irs-pdf/p15t.pdf) using the percentage method to calculate the amount currently withheld from our paychecks (my wife and I both work). On the old Form W-4, (pre-2020), we both have our filing status as "Married, withhold at single rate" and one allowance. Obviously, the 2020 Form W-4 has no such filing status or allowances. It appears, however, when the old Form W-4 is carried over to the 2020 Publication 15-T, the filing status for "Married, withhold at single rate" becomes "Married filing separately."

I used Worksheet 1 (percentage method tables for automated payroll systems) to calculate our current taxes using the pre-2020 Form W-4 data (since we haven't updated our W-4 to 2020), and the withholdings computed are consistent with those in our current paychecks. Check. Based on these withholdings, I believe we're withholding thousands too much between the two of us. This is consistent with how much money we were refunded last year.

I've attempted recalculating our withholdings if we were to use the new 2020 Form W-4, but doing so either doesn't withhold enough (checking box 2c) or withholds way too much using 2(a) or 2(b) for a working spouse.

Has anyone updated their W-4 to the new 2020 Form? Any tips on adjusting your withholdings to minimize refunds?
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Ice-9
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Re: New 2020 Form W-4

Post by Ice-9 »

Have you tried the IRS' calculator?
https://www.irs.gov/individuals/tax-wit ... -estimator

I used it with success in previous years.
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grabiner
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Re: New 2020 Form W-4

Post by grabiner »

On the new W-4, you can convert the withholding change directly to dollars. If you are being withheld in a 24% tax bracket and want to have $2400 less withheld, you report $10,000 in deductions on Line 4(b) (or $15,000 now, since the withholding will start in May and thus cover only 2/3 of the year). If you want more withholding, you can request an extra amount per pay period on Line 4(c), but you cannot reduce your withholding by making a negative entry there.

On the old form, you had to convert the $10,000 in deductions to withholding allowances; when an allowance was $4050, you could not claim two and a half allowances, and needed to either claim two and get a refund, or three and have tax due, or three plus enough additional withholding to cover the tax due.
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FiveK
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Re: New 2020 Form W-4

Post by FiveK »

Invest_Wisely wrote: Tue Apr 28, 2020 3:07 pm Has anyone updated their W-4 to the new 2020 Form? Any tips on adjusting your withholdings to minimize refunds?
Yes, using our homegrown spreadsheets for calculating
- federal and state taxes, and
- withholding based on income alone

Then it's just a matter of using the W-4 final box for Step 3 to reduce, or Step 4c to increase, withholding, so the final amount matches the tax liability (considering amounts already withheld and the number of paychecks remaining). Looks good so far.

The IRS calculator seems to work. I just prefer spreadsheets. The the personal finance toolbox has a decent W-4 section.

Neither of those tools will cover all the details one might have - it' becomes a question of how much work you want to put into this exercise..
Topic Author
Invest_Wisely
Posts: 98
Joined: Tue Jan 08, 2019 10:15 am

Re: New 2020 Form W-4

Post by Invest_Wisely »

FiveK wrote: Tue Apr 28, 2020 9:13 pm Yes, using our homegrown spreadsheets for calculating
- federal and state taxes, and
- withholding based on income alone

Then it's just a matter of using the W-4 final box for Step 3 to reduce, or Step 4c to increase, withholding, so the final amount matches the tax liability (considering amounts already withheld and the number of paychecks remaining). Looks good so far.

The IRS calculator seems to work. I just prefer spreadsheets. The the personal finance toolbox has a decent W-4 section.

Neither of those tools will cover all the details one might have - it' becomes a question of how much work you want to put into this exercise..
Thanks. What I'm having trouble wrapping my head around is why using the new W-4, our withholdings are so far off. The IRS tax withholding calculator indicates that we'll have something like a $12k refund by default ( that is, without adding anything to Step 4c; we don't have any dependents for Step 3). That seems insanely high.
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FiveK
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Re: New 2020 Form W-4

Post by FiveK »

Invest_Wisely wrote: Wed Apr 29, 2020 9:01 am
FiveK wrote: Tue Apr 28, 2020 9:13 pm Yes, using our homegrown spreadsheets for calculating
- federal and state taxes, and
- withholding based on income alone

Then it's just a matter of using the W-4 final box for Step 3 to reduce, or Step 4c to increase, withholding, so the final amount matches the tax liability (considering amounts already withheld and the number of paychecks remaining). Looks good so far.

The IRS calculator seems to work. I just prefer spreadsheets. The the personal finance toolbox has a decent W-4 section.

Neither of those tools will cover all the details one might have - it' becomes a question of how much work you want to put into this exercise..
Thanks. What I'm having trouble wrapping my head around is why using the new W-4, our withholdings are so far off. The IRS tax withholding calculator indicates that we'll have something like a $12k refund by default ( that is, without adding anything to Step 4c; we don't have any dependents for Step 3). That seems insanely high.
That does seem odd. It implies you have ~$12K of tax credits not accounted for. If you do, there's your answer. If not, maybe try that spreadsheet and see if it returns the same thing?
wfrobinette
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Re: New 2020 Form W-4

Post by wfrobinette »

Invest_Wisely wrote: Tue Apr 28, 2020 3:07 pm I believe my wife and I have too much withheld from our regular paychecks for federal taxes. My question is how to correct this using the new 2020 Form W-4.

I consulted IRS Publication 15-T (https://www.irs.gov/pub/irs-pdf/p15t.pdf) using the percentage method to calculate the amount currently withheld from our paychecks (my wife and I both work). On the old Form W-4, (pre-2020), we both have our filing status as "Married, withhold at single rate" and one allowance. Obviously, the 2020 Form W-4 has no such filing status or allowances. It appears, however, when the old Form W-4 is carried over to the 2020 Publication 15-T, the filing status for "Married, withhold at single rate" becomes "Married filing separately."

I used Worksheet 1 (percentage method tables for automated payroll systems) to calculate our current taxes using the pre-2020 Form W-4 data (since we haven't updated our W-4 to 2020), and the withholdings computed are consistent with those in our current paychecks. Check. Based on these withholdings, I believe we're withholding thousands too much between the two of us. This is consistent with how much money we were refunded last year.

I've attempted recalculating our withholdings if we were to use the new 2020 Form W-4, but doing so either doesn't withhold enough (checking box 2c) or withholds way too much using 2(a) or 2(b) for a working spouse.

Has anyone updated their W-4 to the new 2020 Form? Any tips on adjusting your withholdings to minimize refunds?
Why are you using married and withhold at higher? Or in this case filing separately? Maybe I am missing something but why not change to married filing jointly.
mlipps
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Re: New 2020 Form W-4

Post by mlipps »

Invest_Wisely wrote: Wed Apr 29, 2020 9:01 am
FiveK wrote: Tue Apr 28, 2020 9:13 pm Yes, using our homegrown spreadsheets for calculating
- federal and state taxes, and
- withholding based on income alone

Then it's just a matter of using the W-4 final box for Step 3 to reduce, or Step 4c to increase, withholding, so the final amount matches the tax liability (considering amounts already withheld and the number of paychecks remaining). Looks good so far.

The IRS calculator seems to work. I just prefer spreadsheets. The the personal finance toolbox has a decent W-4 section.

Neither of those tools will cover all the details one might have - it' becomes a question of how much work you want to put into this exercise..
Thanks. What I'm having trouble wrapping my head around is why using the new W-4, our withholdings are so far off. The IRS tax withholding calculator indicates that we'll have something like a $12k refund by default ( that is, without adding anything to Step 4c; we don't have any dependents for Step 3). That seems insanely high.
Because what you're considering the "default" (married filing separately) is telling it to withhold at a higher rate. I believe the new married status assumes the other spouse could be employed, while the other is sort of a relic of single income households and only assumes one. So, you'll be much closer to the required witholding now by choosing "married" whereas before most people in a dual income household would have been under withheld.
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