Beginning in January 2020, there will be a whole new look for the W-4 form, which is where workers tell their employers how much money to take out — or withhold — from their paychecks for federal income taxes.
The biggest change to the W-4 form is the removal of the allowances section. You’ll no longer be able to claim certain allowances to increase or decrease your withholding. The new form instead places emphasis on determining all of your sources of income as well as our dependents so that your withholding amount is as accurate as possible.
Because the 2020 Form W-4, Employee’s Withholding Certificate, will be very different from previous versions, communicating the changes to employees will be challenging. Church administrators must balance the desire to be helpful to employees with the understanding that they need to be careful not to give tax advice. Should employees have questions, you may want to refer them to their tax advisor or the following IRS link – Frequently Asked Questions –
To make it easier for you to inform your employees about the new form, Clergy Financial Resources has created a sample letter that you may give to your employees. The letter explains why the form has changed, recommends that employees perform a “paycheck checkup” using the IRS’s Tax Withholding Estimator, and provides basic information about the new steps employees will take to complete the form. Note: the IRS Tax Withholding Estimator is not designed to calculate optional withholdings for clergy.
Sample Letter Explaining the 2020 Form W-4
To: (all employees or individually named employees)
From: (your church name here)
Date: (fill in as appropriate)
Re: 2020 Form W-4
The 2020 Form W-4, Employee’s Withholding Certificate, is very different from previous versions. This is due to the federal tax law changes that took place in 2018. The Internal Revenue Service (IRS) is not requiring all employees to complete the revised form and has designed the withholding tables so that they will work with both the new and prior-year forms. However, certain employees will be required to use the new form: those hired in 2020 and anyone who makes withholding changes during 2020.
Even though the IRS does not require all employees to complete the revised form and even if your tax situation has not changed, we recommend you perform a “paycheck checkup” to see if you need to make adjustments to your current withholding. To conduct the checkup, you can use the IRS’s Tax Withholding Estimator (www.irs.gov/W4App). To effectively use the estimator, it is helpful to have a copy of your most recent pay stub and tax return. Please note: if you do not submit a new form, withholding will continue based on your previously submitted form.
Before completing the 2020 Form W-4, please read the instructions that are included with the form. You must complete Steps 1 and 5. Steps 2, 3, and 4 are optional, but completing them will help ensure that your federal income tax withholding will more accurately match your tax liability.
- Step 1 is for your personal information;
- Step 2 is for households with multiple jobs;
- Step 3 is used to claim tax credits for dependents;
- Step 4 is for other adjustments (additional income such as interest and dividends, itemized deductions that exceed the standard deduction and extra tax you want withheld). This field could also be used for clergy optional withholding to over withhold federal tax to be applied to their self-employment tax.
- Step 5 is where you sign the form.
The Bottom Line
It’s important to fill out a W-4 form correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you have too little tax withheld, you could owe a surprisingly large sum to the IRS in April, plus interest and penalties for underpaying your taxes during the year.
At the same time, if you have too much tax withheld, your monthly budget will be tighter than it needs to be. Also, you’ll be giving the government an interest-free loan when you could be saving or investing that extra money and earning a return—and you won’t get your overpaid taxes back until the following April when you file your tax return and get a refund.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (888) 421-0101
Fax: (888) 876-5101