For those who have been in the workforce for at least a decade or so, they will remember when beginning a new job, having to fill out a W-4 form for their employer which used allowances, or a number to claim. The higher the number of allowances you used, the less tax was taken out, and that, along with a couple other items were all you could modify to change your withholding.
Fast forward to 2020- a new W-4 form was released with the hopes of more accurate withholding to accompany the new tax laws that were enacted a couple years prior.
While the new W-4 form in theory is more advanced than its predecessor, there were still unintended consequences that you or people you know may have experienced. The main unintended consequence was that people’s withholding changed, sometimes significantly, when compared to their withholding using the prior W-4 form. Whether this was a result of an error filling out the form, or lack of understanding of the form, getting your W-4 filled out accurately will lead to more accurate tax withholding. Here are some tips to help you when filling out your next W-4 form.
When to update my W-4?
Along with a change in jobs, you should update your W-4 when you get married or divorced, you have a child, you begin to itemize deductions or you expect a significant raise or windfall.
Multiple jobs or both spouses working
If you have more than one job, each job will not know about the other, and will do your withholding as if you only had the one job. The simple way to make your tax withholding more accurate to check box 2(c) for each W-4 you and/or your spouse have.
For a more precise answer, use the directions in Step 2(a) or (b). But a minimum, you should check the box in 2(c).
Dependents
Your dependents should be “claimed” on the W-4 by the higher wage spouse, or the higher paying job, so that the child tax credit is applied to the income taxed at the higher tax bracket.
Other adjustments
- Line 4(a) Other Income – If you have significant interest, dividends, or retirement income that isn’t taxed elsewhere, enter it here so you don’t get hit with a bill later
- Line 4(c) Extra withholding – If you’re worried about owing, you can tell your employer to take out an extra $xx per pay period just to be safe
For the best result if you have a more complicated income tax profile, use this online IRS tool to assist you in dialing in your withholding. Good luck!