IRS Releases a New Form W-4

The Internal Revenue Service was not well done to modify things for taxpayers when redesigned Form 1040, for fiscal year 2018 and then again for 2019. Now there is a new Form W-4 too, proposed by the IRS May 2019, and officially launched in December 2019. It is essential for everyone to start a new job in 2020 or later.

The change is intended to accommodate changes made, but the IRS has showed that it also wanted to do the easiest way for taxpayers to navigate. Let’s face it-claiming subsidies and finding out how hard each grant coordinated with a certain number of dollars of salary was.

Well, not any longer. The IRS calls the new form “simple” and says it “increases transparency.” The University of Chicago describes it as “significantly different”.

 You will fill out the new form W-4 if you get a new job or update your retention in 2020, and that will affect the tax return you file in 2021.

New 2020 W-4 form is (almost) all questions and answers

The first and major page of the new W-4 cannot be much simpler. It includes five steps.

You are entering the same information that was asked for the previous form, but you are reaching for it differently, answering a short series of questions and following the instructions – everything that accompanies this on one page. However, several tables and spreadsheets are linked after that page.

Now you can enter estimated deductions, tax credits and receipts for the year without having to calculate and convert them to a number of licenses. You can also use the new way to ask your employer to withhold more taxes than needed, without indicating why. That information is now private.

Withholding more taxes than necessary can be a nice touch if you earn additional income as a freelancer and will have to pay taxes on it in the future, but you would rather prefer that your boss did not know.

No more Allowances

The IRS decided these changes were essential because the old W-4 worked on a system that retained licenses-that linked magic number that determined how much tax was withheld from their paychecks, with the personal exemption amount of the year. It used to be that you could claim a personal exemption on your tax return for you, your spouse, and each of your dependents to lessen your taxable profit.

But these exemptions were removed from the tax code by TCJA, and that caused quite a bit of confusion when people tried to update their old W-4s in 2018 and when they filed their 2018 tax returns in 2019. All of this is reflected in the new form name. It is no longer the “certificate retaining the employee’s permission.” Now it’s just the “Employee Retention Certificate”.

Completing the form: steps 1 and 5

The first of the five steps is the easiest. Step 1 is where you enter your name, social security number, address, and filing status. In fact, you have the option to just complete this and step 5, which is for your subscription. Steps 2 through 4 are optional, assuming the total amount of taxes withheld from your salary based on your filing status.

Completing step 2:

Basing your withholding tax on just your filing status may not be best if you:

·  Work more than one job or have other sources of income

·  Are married and you and your spouse work

·  Have several dependents

·  Are eligible to claim numerous deductions

Basic withholding may not be sufficient or it may be too much to cover your tax liability in such cases.

This is where steps 2 and 4 come in, and Step 4 is definitely the simpler of the two. Step 2 is dedicated to taxpayers who work more than one job and have spouses working. It gives you three options for calculating your withholding tax in these conditions: 

·  You can go online and use the IRS estimator retention, and the IRS indicates that this will give you the most accurate result.

·  You can use the various worksheet works that are attached to the W-4 form.

·  You can check a standard box in Step 2 (c) if both jobs pay about the same, or if you and your spouse only work one job at a time and your income is similar.

Yes, two of these options require doing some calculations, but at least the IRS estimator will do the hard work for you. 

Step 4 also grants three options, and this is to use if you have other sources of income from which taxes are not withheld, such as from applications or payment as an independent contractor if you have a show side. You can easily enter the expected amount of this extra income in Step 4 (a).

You also have the option of not revealing how much extra income you have. Do not forget, you are filling out this form to give your employer to allow the company to calculate your retention. Maybe you don’t want them to know that you like an extra $ 30,000 a year on the side. This is OK. Use Step 4 (c) to enter an extra amount that you want to be withheld from pay hour instead. 

Step 4 (b) comes into play If you are qualified to claim a lot of detailed deductions  for which you would prefer to itemize than claim the standard deduction at tax time. You would also use this step if you qualify for any above the profit adjustment line that you do not have to itemize the claim, like deducting student loan interest. Now you have to deal with a spreadsheet again, the spreadsheet deductions, that is, on page 3 of the form. Complete the spreadsheet, and then enter the resulting number.

You may observe that there is a little bit of additional space at the bottom of Step 4. Here is where you can write “exempt” if you happen to be exempt from withholding tax. If this is the case, you will only complete Step 1 and Step 5. You may be exempt from withholding tax if you had no tax liability in 2019 and you do not expect it in 2020, either.

Completing Step 3

This is where you let your employer know if you are going to be claiming any dependents, and it is painless if you can do the math in your head. You won’t even need a calculator.

Multiply the number of dependent children you have by $ 2,000 and enter the result. Multiply the number of your adult dependent by $ 500, if you have any, and enter the result. Then, sum up the two entries together. That’s it. You are done with Step 3.

Where to get help for Form W- 4

The IRS also issued a new publication, “Federal Tax Legislation withholding Methods”, to aid you. It can be useful if you have any specific questions or if you are an employer struggling with all of these changes. And, of course, there is always that real tried and fail-safe: Seek the help of a tax professional, if you are really confused or if your tax situation is particularly complex.

Do you have to introduce a new W-4?

All new hires after January 1, 2020, must use the newly designed form W-4. Otherwise, your employers must base their withholdings on the assumption that they are claiming the standard deduction for single contributors, even if they are married or qualify as a breadwinner and that they have no dependents. This can be highly detrimental if you don’t fit those parameters.

Otherwise, you don’t have to deal with all of that, if you started working for your employer before 2020, and if you haven’t experienced any life events that may make you want to alter your retention, like getting married, having a child or take on additional work. Employees who already have a W-4 on file with their employers for fiscal years 2019 or earlier are not required to submit form w-4, but they can, if they wish. Your employers can keep using your form  compared to the previous year.