Each year, the Internal Revenue Service issues a new W-4, and each year, many people don’t fill it out. Updating your withholding amount is always optional, although the IRS recommends that employees revisit their form W-4 every year. We’ll explain why!
Why Should Anyone Care About the New W-4?
The new form W-4 is designed to make withholdings more accurate. Taxpayers who fill out the 2020 form are less likely to wind up with a large tax bill or a giant refund when they file tax returns in 2021—money that could have been invested or spent on essential expenses throughout the year.
Changes to Form W-4
Many employees who have not had significant life changes, such as getting married or having kids, have probably not filled out a W-4 in a long time. That’s why we recommend that you remind your team about the importance of reviewing their withholdings every year. In addition, any newly hired employees in 2020 must fill out the redesigned W-4.
If that isn’t reason enough to revisit Form W-4, with the passage of the Tax Cuts & Jobs Act (TCJA) in 2017, major changes to employee withholding came to pass. Those changes affected many taxpayers in many ways, and they’re still taking place in 2020.
Now, let’s cover what’s different in the new form:
- New Name: Historically, Form W-4’s title was “Employee’s Withholding Allowance Certificate.” The 2020 Form W-4 no longer calculates “allowances,” so the title has been shortened to “Employee’s Withholding Certificate.”
- No More Personal Allowances Worksheet: The Personal Allowance Worksheet from page three of the old Form W-4 is now gone. This is because the TCJA eliminated personal exemptions.
- New worksheets on Form W-4:The new 2020 Form W-4 has only two worksheets, down from three on the 2019 form. We’ll cover both here so you can understand if you should use them, and why.
- Multiple Jobs Worksheet: According to the IRS, this worksheet is less accurate than the tax estimator, but it provides the maximum amount of privacy.
- Deductions worksheet:The deductions worksheet is for anyone who plans to itemize deductions. Since the TCJA increased the standard deduction, way fewer people will itemize their deductions. Many high earners will still itemize, however. For 2020, if you believe your itemized deductions will exceed $12,200 (if you’re single or married filing separate), $24,400 (if you’re married filing jointly), or $18,350 (if you’re the head of household), you should consider filling out the deductions worksheet.
Should I fill out a new W-4?
The short answer is: It depends.
Here’s a list of questions to ask yourself:
- Are you married? If yes, does your spouse work?
- Do you or your spouse have a second job?
- Do you have any new dependents?
- Is there a chance that you won’t use the standard deduction?
- Did you get a large tax bill or have a large refund last year?
If you answer “Yes” to any of those questions, then we recommend revisiting your W-4. If you were hired in 2020, then you have to complete the new W-4.
Remember, if you fill out a new W-4, be sure to submit it as soon as possible in the new year. You’ll want the adjustments to take effect sooner rather than later, so the right amount of taxes is withheld from your paycheck for as much of the year as possible. Call us if you need assistance with this or any other small business accounting needs.
Trust the Professionals at Goldin Group
At Goldin Group LLC, we understand that as a business owner, keeping up with accounting and taxes is time-consuming and can even be overwhelming. That’s where we can help! We work with individuals and businesses in Maryland (DC Metro Area), offering a variety of financial services designed to save you time and lower your tax burden. If you are a small business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.