Now’s The Time Revisit Your Form W-4
Tax Day is over, but taxes should be considered year-round. On the top of your to-do list should be doing a Form W-4 checkup.
Why? You want to make sure enough tax is withheld so you can avoid an unexpected tax bill next tax season. And with the recent W-4 form changes, you definitely want to re-look at it to make sure you’re withholding the right amount of tax each pay period.
If you’re looking for a different outcome next tax season, you don’t want to get too far into the year without taking another look at your withholding! It can make a big difference with your tax return.
More about Form W-4
When you start a new job, one of the many forms you’re required to fill out for your employer is Form W-4. The form instructs you to fill in your filing status, as well as information about additional income, child-related credits, and other factors.
Your employer uses your filing status, the information you provided about additional income, child-related credits, and other factors together with your pay frequency to determine how much to withhold from your paycheck. If you update your Form W-4, you can have less withheld from your pay, or, conversely, more withheld from your pay during the year. Thus, the state and federal income tax withholdings subtracted from each paycheck have a significant effect on the amount of balance due you owe or total tax refund you may receive when you file your return after the close of the year.
Learn More About The New W-4 Form Changes
In 2020, the IRS issued a new Form W-4 to reduce under-withholding and the likelihood of a taxpayer owing an additional amount when they complete their income tax return.
After collecting user feedback, the IRS is adding more steps to improve withholding accuracy. “The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing the burden for employers and payroll processors.”
The revised form reflects changes from the Tax Cuts and Jobs Act, which made major revisions affecting taxpayer withholding.
Read about the new w-4 Form.
Actions for YOU
It’s important to revisit your Form W-4 this year if you’re looking for a different outcome next tax season. To complete or modify Form W-4, here are a few things you can do:
- Use the IRS Withholding Calculator to help determine if you should complete a new Form W-4. This tool offers a view into how you should complete the new Form W-4.
- Find out how to access your W-4 within your workplace. The form should either be available online or available from your HR or payroll department.
- As explained earlier, change your withholding if you need or would like more withheld.
- As part of this process, you can request your employer to withhold an additional amount from each paycheck.
Although you can adjust withholding any time during the year, the sooner you do, the changes to your paycheck will be less drastic and the more likely your outcome next tax season will be what you expect.
Life Events That Spur a W-4 Withholding Check
Here are a few life events where you would also benefit from a W-4 withholding check-up:
1 – You received large tax refunds in past years
When you withhold too much tax from your paycheck, although you get a bigger refund, you’re paying in more than is needed during the year.
2 – You have owed taxes in years past
Remember: if you withhold too little tax, you might owe money when you think you’re getting a refund.
3 – You have a second job
Working a side hustle? If you work more than one job, check the total withholding amount and make adjustments as needed. It will ensure the amount you withheld covers the total amount of the taxes you owe, based on the combined income from your jobs.
4 – You make estimated tax payments
If you are self-employed or own your own business, you likely make quarterly estimated tax payments throughout the year if you meet a certain threshold for quarterly earnings. If you also work for an employer you can often forgo making quarterly payments by taking more tax out of your employer-paid earnings. In this case, you can adjust your W-4 withholdings from your employer to withhold more taxes each year.
5 – You started a new job
If you started a new job this year, you should revisit your typical W-4 withholdings to make sure you are withholding the proper amount. Your total withholding should cover the income tax owed from your new and old jobs combined.
6 – You have other types of income
If you have investment income (dividends, interest, capital gain), retirement income, or income from other sources you may need to change your withholding or estimated taxes.
7 – You added or lost a dependent
Even though the dependent exemption is suspended for now, there are dependent-related tax benefits that change when your family configuration changes. You may also need to make an adjustment if you have a child turning 17 during the year and you previously claimed the child tax credit for your child.
8 – You got married or divorced
If there is a change to your marital status you should modify your W-4.
Get Help With the New W-4 Form
Tax planning should be a year-round process. Get matched with a tax advisor nearest you and get more suggestions on how to make appropriate W-4 adjustments to maximize your tax outcome.
At Block Advisors, we give you the highest level of tax preparation service and expertise, so you can trust us to help you during tax time and beyond.