Anyone who has a New Year’s resolution to change jobs, or wants to adjust the amount of taxes taken out of their paychecks in 2020, will have to tackle the IRS’s redesigned W-4 form.
The new tax form is designed to be less complex, while also increasing the “transparency and accuracy of the withholding system,” according to the Internal Revenue Service.
“While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees,” the IRS said on its website.
Of course, filling out tax documents can be confusing, even if a form is supposed to make it easier. Here’s what you need to know about the new W-4 form (and what it looks like!)
Why was the W-4 redesigned?
The revamped form now complies with the Tax Cuts and Jobs Act, which increased the standard deduction and family tax credits and eliminated personal exemptions as of 2018. The idea is to allow for more accurate withholdings for two-earner households. When April 15 rolls around, taxpayers would ideally break even, instead of having to pay the IRS or wait for a refund.
Withholdings used to be tied to personal exemptions, which included each adult and dependent in a household. The more allowances a person claimed, the less tax would be withheld from their paychecks. The process wasn’t perfect and at times could feel like trial and error.
Do I have to fill it out?
Employees who aren’t switching jobs and are happy with their tax withholdings won’t have to fill out a new form for 2020, according to the IRS. However, the revamped form could help taxpayers get closer to a more accurate tax bill and avoid any surprises when it comes time to file.
How do I fill it out?
HR and payroll advisers still aren’t allowed to give employees advice on the worksheet, which makes it all the more important for employees to come prepared. The form is divided into five parts. It starts with the basics, including name, social security number, address, and whether a person is filing single or with a partner.
The second step focuses on other sources of income, such as a second job or a spouse who is also employed. If an employee’s spouse makes about the same amount of money as them, they can check box 2(c). If there’s a disparity in incomes, they’ll be directed to an online calculator or a worksheet to help them determine whether they need to enter extra withholding on line 4(c).
Step three focuses on any dependents who can be claimed on a person’s tax return. This is where it could potentially become confusing.
“If an employee is in a two-earner household and they opt to check the box in step two, both spouses should check the box, but only one of them should fill out step three and step four of the form,” payroll processor ADP warns.
Step four involves any additional income, such as investments or a retirement income. Employees can enter that income on line 4(a), or if they’d prefer to keep it private from their employer, they can enter an additional withholding amount on line 4(c).
Step five is arguably the easiest: Just sign and date the W-4 before giving it to an employer.
What if my tax situation is simple?
Good news! For anyone with a tax situation they feel is uncomplicated, the IRS says they can fill out their basic information in section one, sign the W-4, and they should be all set. A person’s withholding rate will be determined based on the standard deduction for their filing status, tax rates and nothing more.
Should I still file early?
The deadline for filing 2019 tax returns is Wednesday, April 15. Since the new tax guidelines took effect in 2018, this year’s tax return can be a good indicator of whether or not to ask HR for a new W-4 to adjust your withholdings.