A W-4 is used so that the
appropriate income tax is withheld from an employee’s wages. Your
employer wouldn’t know what to withhold from your paycheck without it. It
is recommended to update your W-4 annually as wages and circumstances can change.
The new 2020 W-4 was
redesigned to:
·
increase transparence and the accuracy of withholding while
supposedly providing greater privacy. It is also supposed to reduce the burden
on employers and the payroll process.
·
It did away with withholding allowances.
·
It changed single to single or married filing separately and
includes head of household. It also removed the married but withhold at the
higher single rate option.
·
Replaced complicated worksheets with more straightforward
questions
The new form is not
required to be completed unless you are newly employed or wish to update your
older form. It requires you to complete steps One and Five only.
This will provide your employer the necessary information to compute your
withholding and is great if your situation is simple, however, it may not be
completely accurate if you should fall into the categories covered in steps two
the four. One and five cover:
·
1) Personal information such as name, address, SS#, and filing
status
·
5) A signature certifying that the information you provided is
true and correct
Steps two thru four are
optional and are important if you are married filing jointly and your spouse
works, if you hold more than one job, or you have other income not from jobs.
·
2) If you hold more than one job or are married filing jointly
and your spouse works, completing step two will help account for the correct
amount of withholding. If married filing jointly, both parties should complete
the form. If you are self-employed, such as on a side-job, you can use the
estimator to make an adjustment to your withholding to account for the
self-employment.
·
3) Allows you to claim dependents. People who earn over $400,000
are not eligible to claim dependents. These include children or other
dependent family members.
·
4) Allows additional adjustments to account for such things as
other income like retirement to increase your withholding amounts.
I personally was hit hard
the first year the W-4 changed because I did not realize the impact the new W-4
would have on my and my husband’s tax situation. When the old use of exemptions
was removed in the Tax Cuts and Jobs Acts, the old W-4 entries no longer
estimated the correct amount needed to be withheld from our paychecks.
We actually ended up owing a hefty sum as not enough withholding
was being deducted, we both work, his income is significantly greater, and we
had not updated to accommodate our filing status.
Going thru the steps of
completing the new W-4 should allow for a more accurate withholding. This would
mean that taxpayers would either not receive as large of a refund or as
shockingly high of a tax obligation and possibly associated penalties for under
payment.
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