If you are starting a new job this year, or just want to update your tax information with your employer, some of the paperwork is going to look different. A lot different. The IRS has introduced a new Form W-4 that must be used by all employers in 2020 to better accommodate recent changes to the tax law. The overhaul of the form is the biggest in decades and makes a once quick exercise a bit more involved. In return, according to the IRS, it will yield more accurate results. That is particularly important as the new tax law led to surprises for some folks last year, due in part to improper withholdings. So the new form is worth a look, regardless of how long you have been on the job. The more accurate your W-4, the more accurate your withholdings are. Withhold too little and you’ll owe money at tax time and possibly face a penalty. Withhold too much and you may be due a refund — which means you missed out on that money all year. Ideally you should break even. Here’s what you should know: WHAT’S DIFFERENT Say goodbye to allowances, the backbone of the old W-4. Employees used to answer a series of questions to arrive at a number of “allowances.” The allowances were based on personal exemptions — essentially how much income was exempt from tax based on how many people were dependent on the employee. But the new tax law did away with personal exemptions, so the IRS had to change its approach. The form now collects information about all the income in an employee’s household, as well as dependents, to calculate how much to withhold. THE DETAILS The form is five steps long. Steps 1 and 5 are mandatory — fill out your personal information and sign the form. For some people, that will be it. The other steps are optional but can help a taxpayer get more accurate results, says Alice Jacobsohn, senior manager of government relations for the American Payroll Association Step 2 asks employees to provide information about all the income in their household if there are multiple jobs. This applies if the employee has more than one job or if both spouses work and file taxes jointly. Employees can use an online calculator or worksheet to arrive at the correct amount, or they can simply check a box if the pay at both jobs is roughly equal. Payroll company ADP warns of a potential misstep here: if you have two jobs or are in a two-earner household and check this box — do so on the W-4s for both jobs. But only complete steps 3 and 4 on one W-4 to ensure the proper amount is withheld. If an employee does not want to disclose that they have a second job or share their spouse’s income information, there are workarounds. The easiest is to use the IRS Tax Withholding Estimator at www.irs.gov/W4app to determine how much your household needs to withhold and enter that total lower on the form. Step 3 is for claiming any dependents, which are generally consider those who are under age 17 and living with you more than half the year. You’ll need to complete an additional worksheet if you have other types of dependents […]
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