There has been a lot of discussion about the release of a new W4 – well, it’s here. The new 2020 W4 was released on December 5, 2019, and there are several changes.
Use of the old W4, resulted in some tax time surprises with passage the Tax Cuts and Jobs Act of 2017. The goal of withholding is to pay enough in taxes each pay period, so that your year-end tax bill is $0, or as close to it as possible. Unfortunately, during the 2019 tax season, many people found that their return was significantly lower than expected, or worse – they owed taxes.
The new 2020 W4 is designed make it easier to understanding how much should be withheld from each check, allow for self-employment income, and account for multiple jobs.
By way of example: if you have two jobs that each pay $25,000 a year – and you are taxed at that level at each job – generally, come tax time, you will find you have not had enough taxes withheld for your $50,000 income level.
As an extra, added bonus – for those of us whose eyes glazed over when we heard the word ‘allowances’, never fear. It has been banished from the new form. Employees are asked to provide withholding amounts in actual dollars.
The new 2020 W4 still has worksheets to assist employees in figuring out how much to withhold. However, the IRS has also released an online Withholding Estimator to help the process along.
…as always, we recommend referring employees to their tax preparer for assistance with their individual tax situation
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Happy New Year!
The preceding is provided for general informational purposes only, and not intended to constitute legal advice.