Most taxpayers have had questions the last two years regarding their federal withholdings on their tax returns. The withholding tables were adjusted after the big tax change (Tax Cuts and Jobs Act) and it left taxpayers questioning if they were going to get a refund or not like in the past. The IRS has finally provided a solution to those questions and it comes in the form of a new W4. This is the first major redesign of the W4 since 1987!
The purpose of the redesign is to provide more accurate assessments of income and withholdings. It is highly encouraged by everyone to fill out a new W4 going into 2020. It is not mandatory to fill out a new W4 if you started working before 2020, however, if you want to update your withholdings then you will need to fill out a new W4. If you want the most accurate withholdings, we highly recommend reviewing and submitting a new W4.
Now how does the old W4 compare to the new W4? The old W4 simply asked you to fill out some personal information and then asked for your filing status and the amount of exemption you claim. The reason it asked for exemptions was due to the personal exemptions on your tax return. Since the new tax returns do not include personal exemptions, a new W4 needed to be updated to better reflect estimated taxes. The new W4 includes information on filing status, multiple jobs between you and your spouses, dependents, exemptions, and more. The new W4 is lengthy but necessary in order to estimate your taxes accurately. The new W4 has you figure your income from other jobs to help cover taxes from those jobs as well. The best way to describe the W4 is like a mini tax return. Hopefully after filling one out, you will better understand where you stand with your income and total taxes.
The best advise we can give when talking about the W4 is to take your time when filling it out. If you are an employer, give your employees time to take it home and fill out all the pages while reading the instructions. If you are an employee, we recommend asking your employer for that extra time to take it home. We also recommend going on the IRS site listed on the W4 and using their estimator to come up with the most accurate withholdings. When done right, this new W4 should properly estimate your taxes better than ever and allow you to keep more money in your pocket without having to pay the IRS later.
If you need more information on the W4 redesign or need help when filling out your W4, please give us a call and we will be happy to help you fill it out and explain any questions you may have.