The new tax law made it hard to know how much to withhold from your paycheck every few weeks. As a result, many people withheld less last year than they might otherwise have, and either received a smaller rebate than expected or had to pay additional taxes in April.
Now the tax agency has released a proposed new updated Form W-4, which reflects the changes from the Tax Cuts and Jobs Act —including the doubling of the standard deduction, eliminating personal exemptions and limits on certain itemized deductions. You can find it here*, and the plan is for everyone to use some version of this in 2020.
The current W-4 asks taxpayers to note the total amount of allowances they’re claiming (the more, the less tax withheld), and any additional amount they want taken from each paycheck. The new form will ask you to account for multiple jobs within your household, and to spell out the details of any other income that didn’t have taxes withheld, including interest, dividends and retirement income. An additional section asks taxpayers to claim their dependents, and to factor in the $2,000 child tax credit for those under 17, or the $500 credit for other qualifying dependents.
Retirees also need to reevaluate their withholding amounts. They can use Form W-4V to withhold a flat rate from their Social Security check or Form W-4P to withhold from their pension.
Tax experts say the best way to fill out the new W-4, when it’s approved and online, will be to sit down with an expert or tax preparer, with last year’s Form 1040 in front of you. That way, you can account for all the income you may receive in the coming year, and do a better job of withholding the appropriate amount.
We are happy to help you figure out how to utilize this form and determine what you should have withheld from your paycheck. Give us a call, 865-240-2292.
*Please note, this is only a proposed draft as of publication of this article.