IRS 2020 W4 withholding: new calculation method, new form

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eob616
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by eob616 » Mon Jan 13, 2020 7:37 am

moarcoffee wrote:
Sun Jan 12, 2020 1:12 pm


If you're a federal employee, it looks like NFC had an error on their end with PP26 withholding: https://www.nfc.usda.gov/ClientServices ... ED_TAX.pdf
Thanks for the heads up! Wonder what they're doing to "correct" it in PP1, given that I just submitted a revised W-4 to up my withholding...

csmath
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by csmath » Mon Jan 13, 2020 5:15 pm

Update:

This weekend I printed a W-4 that was generated by the online estimator at irs.gov and gave my DW one to submit to her employer. Here was the response she received:
I received your new W4 today, in section 3 you put the amount as $xxxx.xx. That is the area you would claim dependants, however many dependents multiply by $2,000 and that is the amount you would have withheld.

If you are looking to have an additional $xxxx.xx deducted from your paycheck for taxes that would go in section 4c.

Please fill out a new form with the appropriate amounts. If you have further questions, please let me know.
I e-mailed her Payroll Department with an explanation and why I feel it is correct. Awaiting a response. I had included quotes from the directions that I hope clarifies things. Anyone else hear back from their Payroll departments that the pre-filled W-4 forms from irs.gov online estimator are wrong?

epargnant
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by epargnant » Mon Jan 13, 2020 8:39 pm

csmath wrote:
Mon Jan 13, 2020 5:15 pm
Update:

This weekend I printed a W-4 that was generated by the online estimator at irs.gov and gave my DW one to submit to her employer. Here was the response she received:
I received your new W4 today, in section 3 you put the amount as $xxxx.xx. That is the area you would claim dependants, however many dependents multiply by $2,000 and that is the amount you would have withheld.

If you are looking to have an additional $xxxx.xx deducted from your paycheck for taxes that would go in section 4c.

Please fill out a new form with the appropriate amounts. If you have further questions, please let me know.
I e-mailed her Payroll Department with an explanation and why I feel it is correct. Awaiting a response. I had included quotes from the directions that I hope clarifies things. Anyone else hear back from their Payroll departments that the pre-filled W-4 forms from irs.gov online estimator are wrong?
Wow, the wording in that response from her employer doesn't make any sense at all. They say: "however many dependents multiply by $2,000 and that is the amount you would have withheld." But that isn't how much you would have withheld- it's how much tax credit you expect, which would lessen the withholding. Nevermind that not all dependents qualify for the $2000 credit, so it's bad advice from HR all around. And why Line 4c would be an alternative for Line 3 makes no sense. Line 3 is the opposite of Line 4c... but maybe I'm missing something! I'm sure there's a learning curve for HR staff but it must be frustrating for you. Luckily my husband's payroll is basically automated and they don't care what we put.

If they won't allow her to put anything extra on Line 3, you can always increase line 4b, though the calculation is trickier. I think it would be something like this: take the amount from Line 3 that doesn't pertain to dependents (let's say $2000), and divide that by your tax bracket (let's say 22%). So 2000/.22= $9090. Add that amount to line 4b and you should get about the same total withholding as having the $2000 on Line 3.

nolesrule
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by nolesrule » Mon Jan 13, 2020 8:58 pm

Seems like they made it harder for people who want to lower their withholding.

For people who used to be S0 or M0 and had additional money withheld, then nothing has really changed other than the form.

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Tamales
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by Tamales » Tue Jan 14, 2020 11:44 am

I got my first 2020 check, and since I haven't updated my W4 yet for 2020, I'm using the 2019 W4 path in Worksheet 1 on pg 5 of 2020 pub 15-T. My calculated number is close, but not an exact match, to the amount of federal tax withheld on my paycheck (about 20 bucks off).

Probably not worth the pain of contacting payroll to figure out the discrepancy since I'm going to submit a 2020 W4 (because it's taking way too much federal tax out currently due to my increase of the fixed dollar amount to take out, at the end of last year, to meet the underwithholding safe harbor). But since this doesn't match, I doubt that change will square things either.

rkhusky
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by rkhusky » Tue Jan 14, 2020 11:54 am

nolesrule wrote:
Mon Jan 13, 2020 8:58 pm
Seems like they made it harder for people who want to lower their withholding.
You would increase Line 4b to decrease withholding.

Increase Line 4a and/or Line 4c to increase withholding.

nolesrule
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by nolesrule » Tue Jan 14, 2020 2:29 pm

rkhusky wrote:
Tue Jan 14, 2020 11:54 am
nolesrule wrote:
Mon Jan 13, 2020 8:58 pm
Seems like they made it harder for people who want to lower their withholding.
You would increase Line 4b to decrease withholding.

Increase Line 4a and/or Line 4c to increase withholding.
Based on my reading, 4a and 4b are annualized numbers that are used to change your income totals for the tax withholding calculation. They do not directly adjust withholding on a dollar for dollar basis, so without using actual withholding worksheets, you're just guessing on the end result, since it may cause you to change marginal withholding brackets.

4c is a basic per paycheck increase in withholding.

rkhusky
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by rkhusky » Tue Jan 14, 2020 3:06 pm

nolesrule wrote:
Tue Jan 14, 2020 2:29 pm
rkhusky wrote:
Tue Jan 14, 2020 11:54 am
nolesrule wrote:
Mon Jan 13, 2020 8:58 pm
Seems like they made it harder for people who want to lower their withholding.
You would increase Line 4b to decrease withholding.

Increase Line 4a and/or Line 4c to increase withholding.
Based on my reading, 4a and 4b are annualized numbers that are used to change your income totals for the tax withholding calculation. They do not directly adjust withholding on a dollar for dollar basis, so without using actual withholding worksheets, you're just guessing on the end result, since it may cause you to change marginal withholding brackets.

4c is a basic per paycheck increase in withholding.
Right, 4a and 4b adjust your income, while 4c adjusts your tax. In order to effectively use 4a and 4b, you need to know your tax rate.

nolesrule
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by nolesrule » Tue Jan 14, 2020 3:44 pm

We were doing M0 with additional withholding. Initially I projected our tax liability for the year and divided by 50 (total paychecks between the two of us). As we got raises I just increased the extra withholding total by 3% of pay increases (rounded up to the next $5) since our marginal withholding is 22% but we're at 24% plus 0.9% additional medicare. based on reading through the new publications, I can continue that with the new W4 using 4c.

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hornet96
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by hornet96 » Tue Jan 14, 2020 4:16 pm

I tried playing around with the new W-4 calculator as well, just after the new year. When going through the questions, it asks (among other things) what your YTD federal tax withholdings have been. Since our last paychecks were as of 12/31/19, we've obviously had no tax withheld thus far in 2020 so of course I entered $0.

However, no matter what I do, when I get to the end of the calculator, the summary shows that we've had over $36K in federal taxes withheld to date. Since that is obviously wrong, I can't trust that this calculator is at all accurate. Right now I'm using the Quicken tax planner to forecast our tax liability instead, and will wait until we get our first paychecks in 2020 to see how close that is and make adjustments to our W-4's from there.

It would be nice if the IRS calculator actually worked, but it seems like it's still in an early Beta stage to me.

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Johnsson
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by Johnsson » Tue Jan 14, 2020 4:48 pm

Just compared two paystubs from last year and the first from this year...

The numbers were all within 2-3% so I'll assume whatever they deductions they carried over is working. No need to look at the new form!!
'In theory there is no difference between theory and practice. In practice there is.' Yogi Berra

harikaried
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by harikaried » Wed Jan 15, 2020 11:35 am

Just got the first paycheck of 2020, and it withheld 13.9% of taxable wages while the last paycheck of 2019 withheld 16.1% of taxable wages. I just submitted a 2020 W4 to see how it'll change. Although the difference might be related to how 401k contributions are a good portion of earlier paychecks until that maxes out.

DinkinFlicka
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by DinkinFlicka » Wed Jan 15, 2020 3:19 pm

If you leave steps 3 and 4 blank on the new form, how is the default withholding calculated?

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House Blend
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by House Blend » Wed Jan 15, 2020 4:44 pm

DinkinFlicka wrote:
Wed Jan 15, 2020 3:19 pm
If you leave steps 3 and 4 blank on the new form, how is the default withholding calculated?
As mentioned earlier in this thread, you should look at Publication 15-T.
https://www.irs.gov/pub/irs-pdf/p15t.pdf

The details are laid out in Worksheet 1 on p. 5 together with the table on p. 6.

harikaried
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by harikaried » Wed Jan 15, 2020 5:45 pm

House Blend wrote:
Wed Jan 15, 2020 4:44 pm
https://www.irs.gov/pub/irs-pdf/p15t.pdf The details are laid out in Worksheet 1 on p. 5 together with the table on p. 6.
Thanks. This basically looks like a shortened 1040 in a different order. The numbers in step 4a and 4b adjust your pre-tax "1040 taxable income" up or down. Step 4c increases "1040 total payments" while Step 3 increases after-tax "1040 credits."

Whereas the old W-4's allowance number is used to multiply by the exemption dollar value (as if it was $4,300 for 2020) to decrease "1040 taxable income."

rkhusky
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by rkhusky » Wed Jan 15, 2020 6:08 pm

DinkinFlicka wrote:
Wed Jan 15, 2020 3:19 pm
If you leave steps 3 and 4 blank on the new form, how is the default withholding calculated?
It assumes that your wages are your only income and that you are taking the standard deduction. Take your yearly wages, subtract standard deduction, compute the income tax, divide by the number of pay periods, which provides your income tax per paycheck.

bogledogle87
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by bogledogle87 » Thu Jan 16, 2020 8:17 am

MrBeaver wrote:
Sun Jan 12, 2020 11:49 pm
I'm in this strange warp zone where my mandatory 22% holding is on roughly 35% of my gross pay, yet my actual average tax rate is <4% because I'm within the 12% bracket and have a fair number of deductions & credits. Literally, roughly 3x my annual tax liability is forcibly withheld by the middle of February. Grrr...

It used to be easy to 'withhold nothing' by just claiming a large number of exemptions. What's the escape hatch on the new form? Just put a high number in line 3?
I'm trying to figure this out as well. My quarterly bonuses are usually 10-15% of my income and automatically withheld at 20% even though I am in the 12% bracket. This always resulted in a larger refund than I wanted. I used to balance this by claiming additional phantom allowances and had narrowed it down pretty close.

For now, I am just going to let my 2019 form ride until I am forced to change it. In playing with the new calculators, I believe I could enter a higher amount in box 4(b) (Deductions) that would simulate additional allowances. It may not be 100% accurate per the form instructions, but it seems like a better alternative than being forcibly defaulted to 0 allowances.
VTWAX and chill

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neurosphere
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by neurosphere » Thu Jan 16, 2020 8:51 am

Falcon2018 wrote:
Wed Jan 08, 2020 9:02 am
I found this excel file from IRS especially helpful...

https://www.irs.gov/businesses/small-bu ... -employers
This is AMAZING. Provides inputs and outputs for both the new form and old forms. The method this IRS spreadsheet uses differs by about $2-$4 from the other acceptable methods (for example, the method most automated payroll providers use). But there are many acceptable methods and the IRS allows a certain tolerance for employers, who can otherwise choose any method they want.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

Sahara
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by Sahara » Thu Jan 16, 2020 1:04 pm

I did a quick comparison between this calculator and the payroll software I use. I found a $10 discrepancy with a weekly pay frequency. I recommend checking with your employer/payroll service to verify the amounts they will actually calculate.

Sahara
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by Sahara » Thu Jan 16, 2020 1:07 pm

Does anyone else think that $2,000 in line 3 or line 4b would approximate 1 allowance?

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neurosphere
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by neurosphere » Thu Jan 16, 2020 1:25 pm

Sahara wrote:
Thu Jan 16, 2020 1:04 pm
I did a quick comparison between this calculator and the payroll software I use. I found a $10 discrepancy with a weekly pay frequency. I recommend checking with your employer/payroll service to verify the amounts they will actually calculate.
Yes, there are several (at least 4 but likely more) official methods one can use AND can use any method they wish, provided the withholding falls within a certain tolerance.


For tolerances, see page 62.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

rkhusky
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by rkhusky » Thu Jan 16, 2020 1:31 pm

Sahara wrote:
Thu Jan 16, 2020 1:07 pm
Does anyone else think that $2,000 in line 3 or line 4b would approximate 1 allowance?
Publication 15t says that 1 allowance is $4300.

I don't see a spot on the new W4 to enter allowances. It appears they are only valid if you haven't submitted a new W4.

Sahara
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by Sahara » Thu Jan 16, 2020 1:36 pm

Right, there is no spot to enter allowances.

I'm trying to approximate the allowance. I figured if a dependent was worth a $2,000 credit that would equal the allowance.
I believe I should have said exemption. I guess you could enter $4,300 on line 4b to approximate an allowance?

harikaried
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by harikaried » Thu Jan 16, 2020 1:40 pm

Sahara wrote:
Thu Jan 16, 2020 1:07 pm
Does anyone else think that $2,000 in line 3 or line 4b would approximate 1 allowance?
The 2020 W-4 assumes a baseline of 3 allowances for married or 2 allowances for single.

Here's some examples:

Old Single 0 allowance = New Single 4a $8600
Old Single 1 allowance = New Single 4a $4300
Old Single 2 allowance = New Single (rest blank)
Old Single 3 allowance = New Single 4b $4300
Old Single 4 allowance = New Single 4b $8600
Old Single 5 allowance = New Single 4b $12900

Old Married 0 allowance = New Married 4a $12900
Old Married 1 allowance = New Married 4a $8600
Old Married 2 allowance = New Married 4a $4300
Old Married 3 allowance = New Married (rest blank)
Old Married 4 allowance = New Married 4b $4300
Old Married 5 allowance = New Married 4b $8600

rkhusky
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Re: IRS 2020 W4 withholding: new calculation method, new form

Post by rkhusky » Thu Jan 16, 2020 1:44 pm

Sahara wrote:
Thu Jan 16, 2020 1:36 pm
Right, there is no spot to enter allowances.

I'm trying to approximate the allowance. I figured if a dependent was worth a $2,000 credit that would equal the allowance.
I believe I should have said exemption. I guess you could enter $4,300 on line 4b to approximate an allowance?
Yes, line 4b is added to the standard deduction amount in the P15t worksheet.

Tax credit is worth more than exemption. $2,000 credit is worth $16,667 in exemptions for the 12% tax bracket ($9,091 in 22% tax bracket).

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