You complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes.
The current W-4 form requests taxpayers to note the total amount of allowances they’re claiming, more allowances leads to less tax withheld and vice versa. This has been changed…
The new form reflects changes from the Tax Cuts and Jobs Act went into effect in 2018. With the new form, the IRS wants you to account for multiple jobs within your household. Allowances are no longer used for the redesigned Form W-4. 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.
Section 3 calls for taxpayers to claim their dependents, and to factor in the child tax credit and qualifying dependents credit. Just be aware that claiming this on the W-4 will have significant impact on your refund amount.
In Section 4-b, you can list the number of deductions you expect to claim if you think you’ll be itemizing. This way, you can reduce your withholding and take more money home. However, you should expect less refund at the end of the year.
Tax withholding is a balancing play for filers. If you withhold too much tax, you get a large refund the following year. If you withhold too little, and you take home more cash in your paycheck you may owe taxes to the IRS when filing your tax.
Here is our own conclusion:
- If you want to break-even with the IRS at the end of the year, complete the form as it intended.
- If you want to play it safe and get a refund, only complete step 1 and then sign it in step 5. (Neither the form nor the instructions state that taxpayers with multiple jobs may treat Step 2 as optional).
- To be even more safe, and depends on your income, you can complete line 4-c to have extra tax withheld from your check.
As recommended by the IRS, you can use the IRS new withholding estimator when completing your W-4 form https://www.irs.gov/individuals/tax-withholding-estimator
Choosing the right tax professional when preparing your taxes will provide you the right advise and peace of mind all year round.
Michael Zachary, EA, CPHRC