The new year brought changes, including a new Employee’s Withholding Certificate, better known as the W-4 form, which determines how much is withheld from an employees paycheck each pay period for income taxes.
According to the Internal Revenue Services website, the new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system.
“While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees,” read the website.
The revised form was introduced as part of the federal tax law changes that took place in 2018, but was not released in 2019 to allow for continued work to refine the new approach for the form, according to a press release issued by the U.S. Department of the Treasury in Sept. 2018.
Here are the things you need to know about the new form that was officially released last month:
According to Marcia Myers, accounting supervisor at Crippen & Associates of Colusa, the new form has moved away from using allowances and is instead geared more towards tax revenue.
“This change is meant to increase transparency, simplicity, and accuracy of the form,” read a statement on the IRS website. “In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.”
While dependents are still accounted for on the new form, they are given a dollar amount instead of a numbered exception, said Myers.
One of the most notable changes is that the new form allows an employee who works multiple jobs to fill out only one W-4 form instead of one for each job, which was required with the old form.
“Tax rates increase as income rises, and only one standard deduction can be claimed on each tax return, regardless of the number of jobs,” read the IRS website. “Therefore, if you have more than one job at a time or are married filing jointly and both you and your spouse work, more money should usually be withheld from the combined pay for all the jobs than would be withheld if each job was considered by itself.”
Myers said employees that are already holding a position do not need to fill out the new form unless they would like to make changes to their withholding status.
“The withholding determined with the old form will still be applied for current employees,” said Myers. “Once an employee starts a new job after Jan. 1, 2020, the old form will no longer work and they will have to fill out the new one.”
So how do you know if your withholding the correct amount moving forward?
Myers suggests using the Tax Withholding Estimator available at www.irs.gov/W4app to determine if changes need to be made to your withholding status.
To do so, you will need a copy of your most recent pay stub as well as information about additional sources of income and your most recent tax return.
For more information about the 2020 Employee’s Withholding Certificate, visit www.irs.gov/newsroom/faqs-on-the-2020-form-w-4.