Adjusting how much tax is withheld from one’s paycheck will likely now take longer – except for working married couples – thanks to a new Form W-4 released at the beginning of December from the Internal Revenue Service (IRS).
The new form is longer and gets rid of allowances that one could claim for themselves and other family members.
Instead, it asks for more precise information that may require a second look at last year’s taxes. The changes to the form better reflect the President Trump-backed tax law that went into effect in 2018.
Generally, it’s important to get withholdings right. If too little is withheld, one will end up owing the IRS. For the most part, if a worker’s tax status hasn’t changed from last year, they don’t need to fill out a new W-4.
New employees and those who experienced a major life event, like getting married or having a child, need to submit a new one.
Also, if one is unhappy with their 2019 tax outcome – say, they get a smaller refund or owe money to Uncle Sam – they should also complete a new W-4.
The form is actually simpler than the one it replaced, but it will take more time for people to fill out. What used to be a 30-second exercise now will have some looking up last year’s tax returns.
The new form should be easier for married couples who both work, as long as they follow the instructions.
Gone is the messy and difficult nine-step worksheet to figure out how much each couple should withhold from their individual paychecks. Now, married working couples only need to check a box to indicate that they both have jobs and the correct withholdings will be calculated for them.
However, the potential tricky part comes in steps three and four. If a couple checks the working box, only the highest-earning spouse should fill out steps three and four, which ask for dependents, additional income, deductions and extra withholdings.
If both fill out the extra income in step four, then too much will be withheld from paychecks. If both fill in deductions or dependents, too little will be withheld and one could end up with a big tax bill.
The best way to fill out the new form properly is to have last year’s total deductions, other income and tax credits for dependents handy. New workers need to take the form home, rather than expecting it done on their first day.
Be sure to take time and read the instructions, because nobody wants a surprise.
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