A key tax form has been overhauled for 2020. Here’s what it means for you
The Tax Cuts and Jobs of 2017 Act may be best known in South Florida for capping state and local tax deductions, causing many Northerners to flee to Florida.
But the law that took effect in 2018 also rules on tax withholding and personal exemptions.
The changes are reflected in a new form W-4. You may not have thought about that one lately; it tells your employer how much of your pay should be withheld for tax purposes. If you’ve been in your current job for awhile, you probably haven’t seen it in years.
With the new W-4 format, you are now able to take your entire personal income tax bill — including your regular salary plus any other income for which you’d otherwise have to use separate, estimated tax forms — and pay it through your employer as you go.
The idea, experts say, is to eliminate over- and under-paying of taxes. (If you prefer to get a refund, or don’t have additional income, the new changes don’t mean much.)
But if one of the following applies to you, you’ll want to take a fresh look at your W-4:
The personal and dependent exemptions — previously deductible from your income — were eliminated as of Jan. 1, 2018. The new standard deduction was instead expanded, as was the child tax credit, according to TurboTax. Single taxpayers now get a standard deduction of $12,200, up from $6,350. And the CTC has doubled from $1,000 per child to $2,000, and the amount refundable is now $1,400, up from $1,100. Finally, there’s a new, non-refundable credit of $500 for non-child dependents.
The new W-4 is designed to be easier for earners and more efficient for the government.
“So if you have rental income, dividends or interest, you can just put down the total for all other income, and the system will figure out how much additional income tax to add to your withholding from wages to cover it,” said Pete Isberg, vice president of government relations at ADP.
If you have other self-employment income, like driving for Uber, the IRS now has a Withholding Estimator, at www.IRS.gov/W4app.
Note: The new W-4 only reflects income tax withholding, not payroll taxes, Social Security or Medicare.
The new form also makes filing much simpler for married couples who both work and file jointly; they now both need only check a box on the new form. Only one partner should complete the rest of the form — for example., only one spouse should claim a child tax credit and note any deductions or other income.
Although all employees must fill out a W-4, they are not required to withhold. So unless they experience a major life change like a marriage or a new child, they need not take any action with respect to the new form if they do not plan to change their withholding amounts.
For Isberg, whether to aim for a refund represents a “very personal choice” each U.S. household makes, though he notes refunds are effectively a “no-interest loan to the government.”
To be certain of your financial situation, you should at least reexamine, if not re-file, your W-4 every year, according to Charles Zimmerer, a tax attorney in Miami. You’ll have to do so anyway if you have a major life change, like a baby or divorce.
But the coming year is when re-filing a W-4 will really matter, according to Alison Flores, principle tax research analyst with H&R Block’s Tax Institute.
“It’s a good time for everyone to take another look at their W-4,” she said.
This story was originally published January 2, 2020 at 6:06 PM.
