You’re not the only one taking a “new year, new me” approach to 2020. Even the IRS is changing things up — it just debuted a new Form W-4.
Form W-4, the official name for the Employee’s Withholding Certificate, is a document workers fill out so their employers can determine how much federal income tax to deduct from their paychecks. This redesign, necessitated by the 2017 Tax Cuts and Jobs Act, is the first big update Form W-4 has gotten in roughly three decades, according to the New York Times.
The IRS says the makeover “reduces the form’s complexity and increases the transparency and accuracy of the withholding system.” Rather than forcing taxpayers to fill out “complicated worksheets,” they’ll answer “more straightforward questions.”
But what does that mean for you and your taxes? Well, if you do the new Form W-4 voluntarily and get a more precise withholding number, your tax refund will be lower.
What’s Different in the New W-4?
One major shift is that Form W-4 doesn’t use allowances any more.
Previously, the value of an employee’s allowances was tied to their personal exemptions, or the amount of money each taxpayer could automatically deduct for themselves and their dependents.
But personal exemptions were eliminated in the Tax Cuts and Jobs Act. The standard deduction and child tax credit went up instead, according to the Tax Policy Center.
The new Form W-4 calculates withholding by having you complete five steps. Step 1 is just your personal information like your name and Social Security number, and Step 2 is about multiple jobs and spouse work if you have them. Step 3 is for dependents; Step 4 is for other adjustments. Finally, Step 5 is your signature. Not all the steps are required for everyone.
Who Needs to Fill Out a New W-4?
People who start new jobs in 2020 are required to complete the new form. If you’re with the same employer as in 2019 or before, though, then they’ll just keep doing what they’re doing — determining your withholding based on your most recent Form W-4.
However, it’s not a bad idea to do a “withholding checkup” whenever you have a big lifestyle change, like if you get married, become divorced or have a baby.
If your employer does ask you to fill out a new W-4, you’ll need to use the upgraded version of Form W-4. It is our recommendation that everyone selects single in Step 1 and then checks off the box in Step 2.
As always, feel free to call our office if you have any questions
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