The IRS recently issued a revised Draft Form W-4 (Employee’s Withholding Allowance Certificate). The final version will be released in November 2019. This form is not applicable until January 1, 2020. The form was revised to reflect more accurately, the changes in the tax code due to the enactment of the 2017 Tax Cuts and Jobs Act. As a result of this new law, personal exemptions are no longer applicable, so the Form W-4 was updated accordingly. The new Form W-4 focuses on the child tax credit, other income not subject to withholding (such as self-employment income and investment income), and amount of the standard or itemized deductions. In addition, the form more accurately reflects tax withholdings needed for a married couple filing jointly, where both spouses work. Two-income families and people with multiple jobs may be more vulnerable to being under-withheld or over-withheld following these major law changes.
The form will be mandatory for all new employees hired after January 1, 2020. However, individuals who had filled out a Form W-4 prior to January 1, 2020 are not required to fill out the new form, if they have not changed employers. In February 2018, Federal income tax withholdings were automatically reduced due to the new Tax Act, but most individuals were not aware of the withholding adjustment. As a result, many individuals were surprised by the results of their 2018 Federal income tax return. Their refunds were smaller than expected or their balance due was larger than expected. If individuals have not yet adjusted their Federal tax withholdings accordingly, they can do so now using the old Form W-4 or wait until 2020 and fill out the new Form W-4.
The Internal Revenue Service recommends that individuals do a Paycheck Checkup. The easiest way to a Paycheck Checkup is to use the on-line Withholding Calculator (https://www.irs.gov/payments/tax-withholding) provided by the IRS. A Paycheck Checkup can help you see if you’re withholding the right amount of tax from your paychecks. Too little could mean an unexpected tax bill. Taxpayers who need to adjust their withholding will need to submit a new Form W-4 to their employer. Anyone who had a life change, such as getting married or divorced, buying a home or having a baby should also consider a Paycheck Checkup.
Contact us to discuss your individual income tax projection.
Read more Tax Tidbits here.