The W-4 is the IRS form you complete when starting a new job to let your employer know how much federal tax to withhold from your paycheck. Even though you’ve given your employer a W-4 in the past, with the many changes to the tax code, you should consider revisiting this form. There are specific times when you should consider refiling it to optimize take-home pay, while still fulfilling your tax obligations. Today’s post will look at how you can optimize your W-4 for you and your family—and when you should do it.
As we mentioned, Form W-4 lets your employer know how much money to withhold from each paycheck for federal tax purposes. Accurately completing your W-4 is important because if you do not withhold enough from each paycheck, you will owe tax in April. If you withhold too much from each paycheck, you’ll receive a refund. In 2020, the IRS updated Form W-4 to reflect the changes in the Tax Cuts and Jobs Act (TCJA).
What are the differences between the old W-4 and the new version released in 2020?
Some of the major changes the TCJA enacted were an increase to the standard deduction, elimination of household exemptions, and additional tax credits for children and dependents. In previous years, the form asked for the number of exemptions and allowances you were taking to calculate your withholding. But that was removed from the form in 2020 to reflect the changes in the TCJA. The new W-4 also added sections that account for multiple jobs you or your spouse may have, the credits you claim for your children or dependents, and other adjustments that you may want to make to your paycheck.
Do you need to complete the new W-4?
You need not complete the new W-4 if you provided your employer with the form already. But if you want to change your withholding or start a new job in 2020, you need to use the new W-4.
Here are five life changes that should make you think about revisiting your W-4 withholding:
You get a second job
Your spouse gets a job or changes jobs
You’re unemployed part of the year
You get married or divorced
You have a baby or adopt one
How much should you withhold from each paycheck?
Several online withholding calculators can be used to perform a paycheck withholding test. The IRS has a withholding calculator on its website to help you determine whether you’re withholding the appropriate amount from your paycheck. The tax withholding calculator asks questions about your annual tax situation, so having a copy of your most recent paystub and a copy of your most recent income tax return may be helpful. It’s important to answer the questions accurately.
If you need assistance in reviewing your W-4, contact your tax advisor or accountant. Performing your review sooner rather than later is always a preferred choice.