YOUR NEW W-4 FORM IN THE NEW YEAR
Important to Pay Attention Early in 2020 to Avoid Surprises
You may have been among taxpayers who had an unexpected and unwelcomed experience last tax season … owing the feds rather than enjoying a refund. What happened? Well the tax code overhaul in 2017 resulted in positive tax savings for many if not most Americans. To complement these revisions to tax law, the IRS reduced the amount of tax withheld from wages to dovetail withholding with the provisions of the new law.
What followed was a demonstration of unintended consequences and many people didn’t have enough taxes withheld from their paychecks in 2018 to cover the taxes they owed … unintended consequences and unpleasant surprises.
As the remedy to avoid a repeat performance, the IRS overhauled the calculation of how much federal income tax an employer must withhold from an employee’s paycheck in 2020. The document for you to be concerned about is a revised Form W-4.
Yes, it’s different from the old form, so it’s important for you to review your entries on the new form to ensure accuracy in the amount of your withholdings. Your payoffs: 1) Avoid owing money at tax time along with a potential penalty. 2) Be sure you are not withholding too much and missing out on the use of that money all year … said another way, giving the IRS an interest-free loan!
While there is no requirement for you to file a new W-4 other than the practical reasons offered above, unless you start a new job after 2019. That will trigger your need to complete a new W-4 form. You’ll need to put together a fair amount of information which may require guidance from your tax preparer. So, it’s likely that you’ll choose to take the new form home and fill it out there rather than doing so on your first day at work.
If Your Taxes are Simple … So Is the New Form
Simple means you only have one job … and you’re not filing a joint return with a working spouse, no dependents, taking the standard deduction, not claiming tax credits and don’t receive income that is not employment related. If that’s your status, just provide your name, address, Social Security number and filing status followed by your signature and date.
Taxes Not So Simple
The new form provides entries for all income in your household. That means for each job you may have and your spouse’s income if you file jointly. You’ll have to assemble information about your spouse’s income, your dependents, tax credits, and the deductions you expect to claim. That information may trigger a call to your tax preparer to know your total deductions from last year, qualification for the child tax credit, non-wage income in 2019 and other tax-related items.
Note: If you choose not to disclose income from a second job that will be visible to your boss or to share your spouse’s income, you can use the IRS Tax Withholding Estimator to determine how much your household should have withheld and enter that on your W-4.
The Estimator doesn’t require you to provide sensitive information such as your name, Social Security number, address or bank account numbers. Additionally, the IRS doesn’t save or record the information you enter.
Be prepared with your most recent income tax return at hand, your and your spouse’s most recent pay stub plus other sources of income, e.g. invoices, statements and 1099 forms.
Sound Complex?
You are not alone … as with most tax-related things it can be confusing and time-consuming. There are resources that may help you. You could visit the IRS website and if you choose to dig deeper your might seek answers to frequently asked questions that others have posed. You may also receive guidance from your human resources department.
Better yet, why not give us a call and we’ll get it done for you.