Remember when you had to choose zero or one on your W-4 tax withholding form and you had no idea what that meant? If you haven’t had to fill out a W-4 lately, you may not be aware that those options are no longer on the form. Changes to the W-4 form in 2020 eliminated them in an effort to make the form less confusing, but how to fill it out is still one of the most common questions that tax preparers get.
It's All About Your Tax Filing Status
The most important part of the new W-4 tax form, apart from your contact information and your social security number, is your filing status. If you have only one job and are filing single, head of household, or married filing separately, then all you need to do is check the appropriate box and you’re done. Your withholding will now be based on your income and the standard deduction for your filing status.
Unless You’re Itemizing Deductions
If you’re itemizing your deductions instead of taking the standard deduction, your taxable income will most likely be lower, and you’ll want to withhold less in taxes from your paycheck. Fill out the deductions worksheet and enter the resulting amount in Step 4(b).
Married Filing Jointly (or You Have Two Jobs)
If you’re filing status is married filing jointly and you both have a job or you have two jobs yourself, check box 2(c) – you and your spouse should both fill out the W-4 form in this way. If you have children, you should continue to step 3 to complete the questions about dependents, but if you’re married filing jointly, only the spouse with the highest paying job should claim the dependents on their form.
Other Income and Tax Withholding
Do you receive income every year from your investments or from retirement accounts that don’t already withhold taxes? Step 4 is where you can account for that income and withhold additional taxes, so you don’t end up owing at the end of the year. Enter the amount you estimate you’ll be earning from those sources for the year in Step 4(a). If you want to withhold a specific amount for every pay period, you can enter that in Step 4(c).
How Often Should You Change the W-4 Form?
It’s a good idea to assess your income yearly, especially after you’ve completed your most recent tax return. Did you get a huge refund? You’re withholding too much. Owed a lot? Not withholding enough. Has your income significantly changed? Make the appropriate changes to your W-4 tax withholding form. It’s also a good idea to adjust it after any major life changes, such as marriage, divorce, a new child, or an additional job.
Last But Not Least
Don’t forget to sign and date!
Still not sure what to do? The IRS website provides a tax withholding calculator on their website at: https://www.irs.gov/individuals/tax-withholding-estimator.
Or reach out to Moore & Paquette Tax Group, and we can answer your tax withholding questions.