W-4 Forms Have Changed – Here’s What’s Changed
The IRS just released the new Form W-4 which will take effect beginning in 2020, and it has major implications for taxpayers. The new form is intended to make Federal withholding more accurate in conjunction with the new Tax Cuts and Jobs Act (TCJA) that affected taxpayers for the first time last tax season.
When the TCJA passed, it generally meant lower tax liability for taxpayers. Unfortunately, the IRS withholding tables were updated as a result, and many workers had less Federal withholding than in previous years. Basically, taxpayers received more in their paychecks, which meant that less was paid to the Federal government on their behalf. This resulted in a new era of tax returns being filed and historically large refunds were substantially less or nonexistent. The new W-4 has similar implications if not handled appropriately.
Pros & Cons
The good news is, if handled correctly, the new form allows for adjustments such as a second wage earner, side income, child tax credits, and highlights situations which caused problems last tax season. Unfortunately, the form makes the taxpayer calculate their projected liability, which can be cumbersome and have ill-intended effects if filled out incorrectly. This, in theory, allows individuals to set their desired tax refund amount. However, we know from experience that this doesn’t always work as intended. To the Federal government, the ultimate goal of proper withholding is to pay the perfect amount each month so that you receive $0 come April, but we know clients like to have larger refunds as a built-in bonus or savings program.
Employees will not be required to fill out new W-4 forms unless they switch jobs, so the current form on file will remain until updated. However, if your tax liability or refund was not what you were expecting for 2018, it is imperative to review your year-to-date withholdings. You will likely have a similar result for the 2019 tax year.
You can review the new form here. Feel free to call us at (586) 468-0200 or fill out this form to discuss your withholding situation so we can make sure you have the appropriate responses on the new form to receive your desired refund for the 2020 tax year.