TAX WITHHOLDING: THE NEW FORM W-4
Form W-4, Employee’s Withholding Certificate, has been redesigned. Previously, income tax withholding was based on an employee’s marital status and withholding allowances or tied to the value of the personal exemption. With the revised Form W-4, however, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. Furthermore, workers can also choose to have itemized deductions, the Child Tax Credit, and other tax benefits reflected in their withholding for the year.
The redesigned Form W-4 makes it easier for withholding to match tax liability. 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.
Those who started a new job on or after January 1st, 2020 and everyone who desires to update their information would need to turn in a new version of the W-4. Updating your information is also important if the data you provided earlier has changed because otherwise, your employer will be withholding the wrong amount of taxes from your paycheck.
The process of filling out the W4 form is not as complicated as it seems. A manager at the employer’s office can tell you how to fill out a W4 correctly or you can do it on your own.
- Entering basic information about yourself is what it all starts with. When specifying the address on this form, indicate the address to which you receive your mail. Form W-2 will be sent to this address unless you opt to have it delivered to you electronically. You will need a W-2 form for filing your taxes. For your status, you will need to check the appropriate one for your personal situation.
- This next step has to be completed only by those who work several jobs or are filling with their spouse who also works. By filling out this section of the form, you will know that you will be paying just the right amount of taxes.
Having two jobs, whether it is just you working two jobs or both you and your spouse, with a salary that is about the same simplifies this step because you can just mark the checkbox at point c. Otherwise, you would need to manually calculate the withholding or use an online estimator to calculate the withholding amount.
- Step three is also not completed by everyone. This is your opportunity to claim any dependents and reduce the amount of taxes withheld from your paycheck. It is perfectly okay to write “zero”. At the same time, in reality, for example, you can be the head of the family and have a spouse and children. Why might it be advantageous to write “zero”? Your employer will take the maximum amount of taxes from each paycheck. This way you will overpay your taxes. However, in this case, you kind of lend money to the government instead of investing or using as you see fit.
Why is it better to not write “zero”? If you specify as many dependents as possible, you can get more money into your pocket every month. Here, though, you need to be careful not to make a mistake. Otherwise, if you underpaid significantly, you owe a penalty in addition to the taxes you should have paid.
- This step is optional. If you desire to claim any other credits or deductions (in addition to those claimed in previous steps) or need additional withholdings, then take time to fill out this section. If you have a complicated personal financial situation, it is a good idea to first get advice on what exactly you can or should be claiming and to ensure that you are doing all the calculations correctly.
- The final step is to add your personal signature and date and the rest is your employer’s responsibility.