The Internal Revenue Service has announced its intention to roll out a new W-4 form soon — and it might mean huge headaches for the millions of working Americans who use the form to determine how much of their pay should be withheld to pay their federal income taxes.
Pretty much whenever you start a new job, you’re required to fill out a Form W-4, officially the “Employee’s Withholding Allowance Certificate.”
Here’s what you need to know about the proposed new W-4…
Proposed new W-4 tax withholding form is a lot more complicated
Why do I have to fill out a W-4 form?
The W-4 lets your employer know how much of what you earn for your work they should withhold to pay the federal taxes on your wages.
If you fill out the form correctly, ideally you should neither owe too much nor get a huge refund when you file your taxes for the prior year.
The form has remained pretty much unchanged for quite some time, but the IRS now says it intends to have an updated, more complex form for the year 2020.
How will the new W-4 form differ from the current one?
Take a look at the current W-4 form (which will probably look familiar if you’ve had a job any time recently) and the proposed new form. Keep in mind that the proposed form below could change before it is officially released:
As you can see, the proposed form is quite a bit longer than the existing one and contains a lot more information, even though the IRS said in its release about the changes that “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
But the length of the form isn’t the biggest difference: Allowances are going away.
Currently, you are asked to fill out a worksheet which gives you a number of allowances to fill in. Allowances are exemptions that reduce the amount of tax your employer withholds. The more allowances you have, the more of your pay you actually take home.
On the proposed new form, you’ll be asked to fill in dollar amounts for:
- Income from other jobs in the household
- Expected income tax credits
- Itemized and other deductions
- Non-wage income like interest, dividends and retirement income
As USA Today puts it, “Filling out the new form will be a lot like doing your taxes again.”
How often do I have to fill the W-4 out?
While the new form will undoubtedly be more complicated, it should mean that that withholding amounts will be a lot more accurate. Money expert Clark Howard says that’s a good thing when mid-April rolls around:
“I’d prefer that you get no refund at all. If you are getting one, it means that you’ve made an interest-free loan to the government and your money has been working for them — not you — all year long.”
So, because of that improved accuracy it will likely be beneficial for you to fill out a new W-4 — as painful as it might be — every year or so since your financial situation is likely to change over time.
With all of this said, it’s remotely possible that these proposed changes don’t see the light of day any time soon. The new form was slated to be rolled out this year, but the sample was met with concern from tax and payroll professionals.
The IRS announced that is was taking comments on the proposed design until July 1, so they’re likely processing all of that information now. Team Clark will keep you up to date on everything when and if it becomes official.