…It’s more complicated than it used to be.
If you were surprised to find you owed taxes this year, or received a lower-than-expected refund due to the new tax laws, you’ll want to read this. The Internal Revenue Service is changing how you adjust your paycheck withholdings, and it’s more complicated than it used to be.
In September, the IRS revised its plan to implement the new W-4 form for 2019. It’s now focused on releasing the new W-4 version in time for the 2020 tax year.
Exemptions have been eliminated, so the old ”allowances” method is history. The new form will ask workers to enter the annual dollar amounts for:
- Non-wage income, such as interest and dividends
- Itemized and other deductions
- Income tax credits expected for the tax year
- For employees with multiple jobs, total annual taxable wages for all lower paying jobs in the household.
According to Kathy Pickering, executive director of H&R Block’s Tax Institute, you’ll probably need the following information to fill it out correctly, from past 1099 forms, pay stubs or last year’s tax returns :
- Your filing status
- Number of dependents
- Information about your itemized deductions such as home mortgage interest, state and local taxes, and charitable deductions
- Earnings from all jobs
- Information about nonwage income such as business income, dividends, and interest.
“If you’re married, and both you and your spouse work, it will also be helpful to know information about your spouse’s income,” she says.
Privacy issues with the new form are a concern for some. The form will ask for spousal and family income that workers might not want to share with their employers. Other employees may not want to disclose they have another job or do side work outside their full-time job.
An alternative will be to use this Withholding Calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate. Submit the completed Form to your employer as soon as possible, since withholding takes place throughout the year. The IRS website adds this note for 2020:
“If you follow the recommendations at the end of this Calculator and change your withholding for 2019, the IRS reminds you to be sure to recheck your withholding at the start of 2020. This is especially important if you reduce your withholding sometime during 2019. A mid-year withholding change in 2019 may have a different full-year impact in 2020. So if you do not file a new Form W-4 for 2020, your withholding might be higher or lower than you intend. To help protect against having too little withheld in 2020, we encourage checking your withholding again early in 2020.”
The IRS says the Calculator works for most taxpayers, but people with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. (“Complex tax situations” refers to taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, people with long-term capital gains or qualified dividends, and taxpayers who have taxable social security benefits.)
Yes, the withholding calculations are complicated. The goal of the new W-4 form is that the amount held back for taxes from each paycheck is more accurate. A taxpayer shouldn’t owe or be owed – no surprises – at tax time. Staying informed and organized when it comes to tax preparation and planning can help eliminate unwelcome surprises.
If you are confused, anxious, or overwhelmed, call an expert like TYSLLP.com. They understand the new tax laws and they can help guide you through all the changes.