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

The IRS released a new version of the Form W-4 at the beginning of 2020, which is intended to assist payroll departments with determining how much federal income tax to withhold from your paycheck. Here are the important things you need to know about this new form:

Am I required to complete this form?

There is no IRS requirement for employees to submit new forms, unless you are requesting a change to your withholding or you are starting a new job. However, it may be worthwhile to update your W-4 if you were surprised by a significant tax bill or refund when you last filed your income taxes or if your tax situation has recently changed.

What's different about this form from the previous version?

The new version is designed to be less complex so that your withholdings can be more accurate. It also takes into account the fact that personal and dependency exemptions are currently suspended, so the new form removes allowances and instead takes into account information that affects your taxable income under current tax law.

What does it mean that exemptions are gone?

The Tax Cuts and Jobs Act suspended the personal exemptions that were previously allowed for each dependent in the household. While there are still rules that allow for tax deductions and credits for certain dependents, taxpayers no longer automatically get a deduction of several thousand dollars for each dependent in their household.

Will my tax withholdings change with this new form even if my situation doesn't?

One of the goals of the form was to make withholdings more accurate, meaning that you are less likely to underpay, but you're also less likely to have too much withheld.

What if I don't want my employer to know about my other income?

You're not required to complete the steps including this information, but be aware that you may need to take additional steps to ensure you're paying enough in throughout the year in order to avoid underpayment penalties. One way to ensure enough is withheld without revealing additional information to your employer via the form would be to have additional funds withheld on Step 4(c).

Alternatively, you could pay estimated taxes via Form 1040-ES. Use the IRS Withholding calculator to get an idea of how much you should have withheld or pay via estimates.

I'm used to getting a refund – how can I make that happen?

The simplest way to make this happen would be to enter the additional amount you'd like to have withheld in Step 4(c), but you may wish to re-think that strategy for a better overall outcome for your personal finances. Rather than having the IRS save up your money for you, without having to pay interest, consider setting up a direct deposit of the same amount from your paycheck to a savings account where you can actually earn something on the money you're having "withheld."

How does your Form W-4 knowledge compare to the average American taxpayer?

W-4 Overconfidence InfoG

If spouses are both employed, only one spouse needs to complete a W-4 form (FALSE).

When both spouses are employed and file a joint tax return, their Federal income tax will be based on their combined earnings, deductions and credits. Unless the W-4 forms for both spouses reflect their current situation, their combined withholding can be substantially different from their tax liability, possibly resulting in an unwanted surprise at tax time or even a penalty for underpayment.

W-4s can only be updated once a year (FALSE).

There is no limit on how often you can update your W-4 during the year to keep up with changes in your situation. For example, the birth or adoption of a child can change the number of dependents claimed, or the return of a spouse to work may call for increased withholding in order to avoid a significant bill at tax time.

Filling the W-4 form out incorrectly can trigger an IRS penalty for underpayment (TRUE).

Your employer will use the information you provide on Form W-4 to determine the amount of Federal income tax to withhold from your pay. Incorrect information such as an overcount of dependents or omitting consideration of significant income with no withholding like interest or dividends can lead to withholding that falls short of the taxes you owe for the year, possibly resulting in a penalty for underpayment.

The IRS has a free online tool to help Americans estimate their W-4 amount (TRUE).

The IRS offers a free Tax Withholding Estimator tool. Using this calculator to help complete your W-4 can provide the greatest accuracy in closely matching your withholding with your tax liability, and allows you to retain privacy regarding non-job income since your employer will only see the extra withholding needed on the W-4 rather than the income used to calculate it. This is a great tool to see if you need to adjust your withholdings by submitting a new W-4.

Updates to Form W-4 form are recommended for certain life changes, like having a child (TRUE).

Life changes such as having a child, getting married or divorced, or a spouse starting work during the year can affect your tax liability. Updating your W-4 to stay current with changes in items shown on the form, such as multiple jobs, dependents, other income and deductions, can help keep your withholding aligned with your tax liability and avoid surprises at tax time.

The W-4 form should be coordinated on all jobs for accurate tax withholding (TRUE).

Your income tax will be based on earnings from all your jobs, and your spouse’s jobs if married and filing a joint return, along with other taxable income. Since more than one job means withholding will be from multiple employers, it’s important to coordinate all your W-4 forms so that overall withholding will align with your tax liability. For example, you should claim your dependents on only the W-4 for the highest paying job, to avoid double counting of expected tax credits in figuring your total withholding.

Where can I go for help or more information?

For more stats that explore the opinions of tax-filing Americans regarding their awareness and experiences surrounding the updated Form W-4 and its implications, check out the Harris Poll survey press release, "45% of American Taxpayers Have No Idea When They Last Updated Their Withholding: AICPA W-4 Survey."

For more information and other FAQs, the IRS has set up this website as a guide.