2020 Tax Withholding from Wages

February 4, 2020 | by Doug Parham, CPA

The IRS has created a new form W-4 (Employee’s Withholding Certificate).  Employees should use this form to direct their employer to withhold proper amounts of federal tax from their wages.

The form and related instructions walk through a five-step approach to complete the form:

  1. Enter personal information
  2. Complete if you have multiple jobs or your spouse works
  3. Claim dependents
  4. Other adjustments (optional)
  5. Employee’s signature and date

Note: that the new form W-4 is for federal withholding purposes only.  The state of Oregon has a new form OR-W-4.  This form also has a five step approach as follows:

  1. Declare withholding status (Single, Married, or Married, but withholding at the higher single rate
  2. Allowances (refer to worksheets A, B, or C)
  3. Additional amount to withhold
  4. Exemption from withholding
  5. Employee’s signature and date

Oregon’s default withholding rate is 8%.

Children and Tax Withholding

We often get asked about dependent children and tax withholding.  Generally, we would expect dependent children to be able to claim exemption from withholding.  For the federal W-4, claiming exempt is not as evident as in the past.  In the instructions there is a paragraph on “Exemption from Withholding”.  To claim exempt, simply complete step 1, write EXEMPT in the white space below step 4(c), and complete step 5.  If you have a W-4 on file with an employer and claimed EXEMPT you must complete a new W-4.  If you do not complete a new W-4 to continue the exemption by February 18, the employer will start withholding income tax at a default rate.

IRS Tax Withholding Estimator

For other employees completing the new W-4, the IRS has developed a new and improved Tax Withholding Estimator on their website that allows users to estimate their tax and adjust their withholding to arrive at their desired refund amount.

If you have taxes withheld from wages and pay quarterly estimated taxes because you have other sources of income besides wages, it is a good idea to let the withholding cover the tax associated with your wages and cover the tax associated with your other income using the quarterly estimated payments.

If you change your withholding and we have calculated quarterly estimated tax payments/vouchers for you, please contact us to let us know what your withholding will be for the year so we can consider if any change is necessary with respect to your quarterly estimated tax payment amounts.