The purpose of Form W-4 is to help employers withhold correctly from their employee’s paychecks. Individual taxpayers usually use a W-4 when their personal or financial situation changes (such as after the birth of a child, marriage, promotion) so that they can know their changed tax liability and withhold accordingly.
But after the 2017 Tax Cuts and Jobs Act, even those taxpayers whose personal or financial situation remained the same may need to use the new Form W-4 (2019) for calculating their withholding correctly. If you got a refund surprise this year, it’s time to take a look at the new W-4 or use the IRS online Tax Withholding Estimator to find out your correct withholding amount. Bloomberg takes a closer look at the new W-4:
“‘The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system,’ according to a Treasury Department fact sheet. ‘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.’
In the most recent filing season, some taxpayers expressed concerns that their refunds were much smaller than in past years. The old W-4, which hadn’t been updated to reflect all the changes to the law, is responsible for some of the surprises.”
“The new W-4 will reflect changes made in the 2017 tax cut law, which raised the standard deduction, lowered tax rates and altered available credits and deductions for taxpayers. The law also got rid of personal exemptions, an amount of money taxpayers could deduct for themselves and dependents.
The form will require taxpayers to fill out whether household members hold multiple jobs, dollar amounts for other income not automatically subject to withholding, such as pay from freelance work and anticipated tax credits and deductions. The form also allows for taxpayers to instruct their employer to take out additional money each pay period.
Employers then use that information to calculate how much tax to keep out of their workers’ paychecks and send to the IRS throughout the year. Employees who have more withheld than what they owe get a refund when they file their tax return the following year. Those who don’t have enough taken out end up owing the IRS the difference during tax season.
Confusion over whether the form would be revised before the first filing season under the new tax law kept many taxpayers from checking and adjusting their withholding rates, tax professionals have said.
The IRS is encouraging all workers to check their withholding using an online calculator so they aren’t surprised next year with their refund size.
Taxpayers should increase their withholding if they have multiple jobs or if they and their spouse are both employed, according to the Treasury fact sheet. People can reduce their withholding if they are eligible for tax credits and deductions, such as the child tax credit, the sheet said.”
If you have submitted a W-4 to your employer in which you got your withholding wrong, you can re-submit a new W-4 with the correct withholding. Changes in W-4 can be made throughout the year.
Along with W-4, using the IRS online tax calculator can help you to avoid withholding more, which is equivalent to giving a free loan to the IRS; and withholding less, which can attract penalties for failure to pay on time.