IRS revamps W-4 forms to ensure proper withholding after Trump’s 2017 tax changes

Don’t get spooked by changes in your employer’s tax withholding form, even if they could potentially complicate your personal and professional lives.

The IRS’ revamped W-4 form is designed to ensure withholding numbers are just right — not too much, not too little — given the Trump administration’s 2017 tax changes, which cut rates but also ended or reduced some deductions.

“The problem with the old W-4 form is that many employers were withholding based on the idea that this was the employee’s only job and sometimes it wasn’t,” says Bernard Kiely, a CPA based in Morristown, New Jersey.

But the new W-4, which requires the employee to disclose ancillary sources of income, could be a problem for both worker and the company.

Some full-time employees with second jobs might not want to disclose to primary employers that they moonlight. “They might not even want their spouses to know that they have extra income,” said Alice Jacobsohn, an American Payroll Association spokeswoman.

For taxpayers, proper withholding is an issue at tax filing time. Last year, with the new lower rates, many Americans were surprised to find that they were getting a smaller return than expected or, in some cases, having to pay more taxes. The latter was the result of inaccurate withholdings.

“Employers must accurately apply input from forms W-4 and calculate withholding in accordance with the new formulas and instructions. Employers may be held liable for amounts that should have been withheld but were not,” according to Pete Isberg, president of the National Payroll Reporting Consortium.

Employers must use the new form with new hires in 2020, but the old W-4 can continue to be used by existing employees, even if it turns out too much tax is withheld.

“The IRS certainly won’t object if you are overpaying,” Jacobsohn noted. “You will be giving them an interest-free loan. Some people actually look upon it as a kind of savings, which it is not.”

Still, Jacobsohn reminds taxpayers that those who haven’t adjusted withholding and who underpay by large amounts will incur penalties.

Do want to figure it out on your own? Take a recent pay statement and go to Review the numbers using its withholding calculator.

“The tool is useful,” Kiely said, “because you answer the questions and the tool does all the work.”

The tool, the IRS says in a release, “allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.”

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