The new W-4 form

Avoid tax refund surprises by filling out a new form

There’s a new federal income tax withholding form, and a good reason to fill it out fresh this year. It’s the first major update to the form since Congress made sweeping changes to the federal tax system in 2017, backed by President Donald Trump. While a majority of filers owed less in federal taxes last year after the legislation took effect, many were surprised to get a smaller refund than they expected. Filling out the new withholding form, known as the W-4, could fix that problem by making sure the right amount is withheld from your paycheck – even though filers are only required to fill out the form if they are starting a new job in 2020.

In my opinion, there’s more incentive now to adjust your W-4 than last year. Even less money might have been set aside from your pay last year because of the new withholding tables which took effect. Getting a smaller refund isn’t a bad thing and suggests your withholding was in line with how much you owed. But it could be a surprise for taxpayers who were expecting a bigger check back from Uncle Sam after filing their returns – and filers who wind up owing a lot when they file their taxes could get hit with penalties for withholding too little. Getting a smaller refund check may be a shock, but it means that less was loaned to the government interest-free through over-withholding. As with all tax matters, decisions related to withholdings rely on the filer’s personal preferences and life situation, so it’s ideal we help to tailor the best approach.

The new W-4 form looks significantly different than the one taxpayers have been filling out for decades. It adds some steps, but only if they apply to your tax situation. Here’s what you need to know:

Allowances’ are gone

The old form focused on how many “allowances” a filer was claiming, but that question no longer exists. While it was common for taxpayers to simply enter one allowance for each household member on the old form, that wasn’t exactly how the form was meant to be filled out – and certainly doesn’t align with the tax law. Allowances were tied to the number of personal exemptions you could claim, which were based on the number of dependents. But the new tax law eliminated personal exemptions and, instead, increased both the standard deduction and child tax credit. Now, the form directly asks how many children and dependents you have – and asks you to multiply that number by the amount of the federal tax credit.

Does everyone have to complete a new Form W-4?

No. The only requirement to complete the new form is if you are hired by a new employer in 2020. It can also be done if you want to have more (or less) money withheld from your paycheck — perhaps because of a life change, like getting married or having a baby. Employers can ask all workers to fill out new forms, the IRS says, but it’s not required. Employers will continue to calculate withholding based on your most recent W-4.

Should I file a new W-4 in 2020 even if I don’t have to?

The IRS encourages workers to monitor paycheck withholdings each year and file a new W-4, if needed, to be sure enough money is being set aside for taxes. The IRS recommends that workers complete a “paycheck checkup,” by using the IRS’s online estimator, to see if they need to adjust their withholdings.

What if I have more than one job or my spouse has a job?

Instead of filling out a separate worksheet, now a filer can simply check one box if they work two jobs – or if they have a spouse that works. If you work more than two jobs (or don’t want your employer to know you earn income from elsewhere) you can still fill out a worksheet to determine how much extra you should have withheld.

You don’t have to fill out every question

The form is divided into five steps, but if your tax situation is fairly simple you can skip the questions about other income and dependents. Your withholding will be based on the standard deduction, with no other adjustments.

Are you worried about the new rules? Our experts at ALLURE International Tax Consulting are here to assist with all of your tax needs and questions about the new W-4 form.