By Sean J. Brennan, CPA
A new Form W-4 had been created as a result of 2017’s Tax Cut and Jobs Act (TCJA). This W-4 has been in use in 2018-2019, but was deemed overly complicated and less than accurate. Therefore, those prior uninspired W-4 revisions necessitated a new new W-4 … a Revised Form W-4 (2.0), if you will.
The IRS unveiled a draft of the latest W-4 on May 31, 2019. The IRS Commissioner Charles Rettig commented, “The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community. … The primary goals of the new design are to provide simplicity, accuracy, and privacy for employees while minimizing burden for employers and payroll processors.”
The final draft W-4 is expected to be released (unchanged) imminently. It is, indeed, the result of feedback the IRS received, particularly concerning the unnecessary complexity and confusion that last year’s form generated.
The prior W-4 revision failed to adequately address TCJA changes, such as the elimination of allowances that were necessitated when the TCJA eliminated personal exemptions.
The new Form W-4 is condensed to one page and uses a fairly straightforward four-step process for calculating the appropriate withholding amount:
- Enter personal information
- Account for multiple jobs
- Claim dependents
- Other adjustments
The most complicated aspect of the revised W-4 is determining the appropriate withholding when the taxpayer has multiple jobs or is married filing jointly (“Account for multiple jobs”). These scenarios require taxpayers to choose one of three options:
- Use the new Tax Calculator at www.irs.gov/W4App.
(the most accurate and most private)
- Use the worksheet provided on page 3 of the form.
- Check the box provided when your household has two jobs.
When using option three, the standard deduction and tax brackets will be equally applied. Therefore, the similarity in earnings between the two taxpayers will affect the accuracy of option three. The less similar the earnings are between the taxpayers, the more taxes will generally be withheld. This may lead to excess tax withholding and the generation of tax refunds.
Tax filers will want to consider this wrinkle to avoid overpaying when filing to “break-even” is the preferred choice.
Regarding the implementation of this new W-4, employers are not required to force employees to change their existing W-4. Employers are permitted to request those employees hired before 2020 to complete a new Form W-4, but all newly hired 2020 employees will be required to complete the new W-4. Newly hired 2020 employees who fail to use the new W-4 will be treated as single filers and will receive the single-filer standard deduction, regardless of circumstances.
As a final note, and similar to prior years, Form W-4 does not account for self-employment income or investment income. The corresponding income tax created by those income categories will still be reported through quarterly estimated tax payments.
I've alerted my clients to look for this newest revision to Form W-4. Hopefully this version will accomplish the IRS commissioner’s stated goals of increased accuracy, simplicity, and privacy. I think this latest iteration of the W-4 finally meets those three objectives. For the best possible result, I encourage taxpayers to use the Tax Calculator at www.irs.gov/W4App.
Sean J. Brennan, CPA, is president of Brennan and Company CPA PC in Philadelphia and is chair of PICPA’s Federal Taxation Committee.
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