What You Need to Know About the New Form W-4

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The IRS has recently released a new draft of the redesigned Form W-4, which helps a taxpayer determine their tax withholdings. This redesign was prompted by the Tax Cuts and Jobs Act (TCJA) passed in 2017 which made significant changes to the tax code and taxpayer liabilities, resulting in numerous taxpayers unpleasantly surprised upon filing their 2018 federal tax return. This new and improved Form W-4 is meant to compliment the changes made by the TCJA and simplify the process of determining how much taxpayers should withhold for the 2019 calendar year.

The redesign has simplified the Form W-4 into 5 simple steps and many employees will only need to complete steps one and five. Step one is filling out personal information like the taxpayer’s name and filing status and step five is signing the form. If only steps one and five are completed, the taxpayer’s withholding is calculated using the filing status’ standard deduction and tax rates without any other adjustments.

If steps two through four apply to a taxpayer, it is recommended that the instructions are followed to ensure that their withholdings are adjusted to match the tax payer’s liability more accurately. The IRS suggests that taxpayers who hold more than one job at a time, have a household where both spouses are employed, or have income from alternative sources aside from a job that is not subjected to withholding increase their withholding. If those adjustments are not made, the taxpayer may owe additional taxes upon filing as well as interest and penalties. The IRS also suggests that certain taxpayers consider decreasing their withholding if they are eligible for tax credits like child tax credits or similar dependent based credits and other deductions outside of the standard deduction.

If a taxpayer has multiple jobs, there are three options they may choose from when filing a Form W-4 with this new redesign pending final release for the tax year 2020.
•  Use the calculator provided by the IRS which will guide the taxpayer to add an additional withholding on Line 4c. The taxpayer will need to know the approximate amount that each job pays to complete the entry properly. However, the information is only required to be put on one Form W-4 for one of the jobs held, ensuring accuracy and privacy.
• Please note that if the payment for any of the jobs changes significantly, a new Form W-4 must be filled out and submitted.
•  The taxpayer may achieve the same results as option one by using Worksheet 1 on page 3. This worksheet will also guide the taxpayer to enter additional withholdings on Line 4c. The taxpayer will need to know the approximate amount that each job pays to complete the entry properly. However, the information is only required to be put on one Form W-4 for one of the jobs held, ensuring accuracy and privacy.
• Please note that if the payment for any of the jobs changes significantly, a new Form W-4 must be filled out and submitted.
•  If there are only two jobs held at the same time, the taxpayer can check the box in step 2 on the Form W-4 for both jobs. The standard deduction and tax bracket will be split equally between the two jobs.
• Please note that there is no need to submit a new Form W-4 if the payment amount changes for either job; however this option is a less accurate option that numbers one or two described above. The more similar the payments are between the two jobs, the more accurate the withholdings will be. This option also reveals to the employer that the taxpayer has multiple jobs or has multiple jobs in their household.

The release of the final draft of the redesigned Form W-4 is scheduled for mid to late July as well. Payroll processors will need to update their systems before the final release of the form this coming November. Be aware that taxpayers are not required to submit a new Form W-4 because of this redesign. For the tax year 2019, continue to use the current Form W-4. If there are any other questions about the new Form W-4, there is an FAQ page that the IRS has provided.

With these new changes brought about by the Tax Cuts and Jobs Act, we here at Mazur and Associates CPAs and Business Advisors assure you that we are readily available to help you make the best decisions for your specific tax situation. Make sure that your 2019 federal tax filing is a pleasant endeavor instead of a headache! If you are concerned about your federal withholdings or amount of estimated tax payments, check out our blog post on Paycheck Checkups. Or telephone us at (732) 936-1230 to schedule an appointment.

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