If you are now or ever have been a W-2 employee, you know that one of the many documents that you’re required to submit to HR in your first couple of weeks is the W-4. But do you know why?
WHAT IS THE W-4?
The W-4 is a document used by your employer to estimate the amount of tax that should be taken out of each paycheck to meet your tax due by the end of the year. What you are submitting is a very brief overview of your tax situation to get that estimate as accurate as possible. Thing is, it used to be a much more simple form.
WHY DID IT CHANGE?
While the old form used to be simple, many taxpayers found it hard to use the accompanying worksheets to figure out how much to withhold (remember withholding allowances?) The IRS says the new design “reduces the form’s complexity and increases the transparency and accuracy of the withholding system”. The new worksheets ask straightforward questions about your situation to help you more easily determine what to report.
DO YOU HAVE TO SUBMIT A NEW W-4?
Nope! Employees who have submitted a W-4 before 2020 are not required to submit a new form just because of the redesign, but since employers will continue to compute withholding based on the information from your most recently submitted W-4, you’ll want to update if you think adjustments need to be made.
SO WHAT SHOULD YOU DO NEXT?
The IRS has built a tax withholding estimator to help you calculate where you stand and what you’ll owe at the end of the tax year. Grab your most recent pay stub and tax return and get to it. Happy estimating!