In Parts One and Two of our previous blogs we’ve been addressing some of the more common questions that our partners at TaxBandits are receiving about the IRS’ updates to the W-4 Form, required of all employees subject to any Federal withholding by their employer.
1. In Step 2, which option should I use if I have multiple jobs? Is one more accurate? Will my employer see on my W-4 that I have a second job?
Step 2 provides three options, each has tradeoffs between accuracy, privacy, and ease of use depending on your preference:
Step 2(a): For the most accuracy and privacy, use the Tax Withholding Estimator found at www.irs.gov/W4app. You’ll be asked to enter any additional amounts you want withheld in Step 4(c). It’s important to know the estimated amount you’re paid from each job, enter the additional amount of withholding in Step 4(c) on separate W-4 Forms for each job.
Step 2(b): If you’re not able to access the Tax Withholding Estimator but would like to have a roughly accurate withholding and retain your privacy, use the Multiple Jobs Worksheet on page 3. You’ll be instructed to enter an additional amount withheld in Step 4(c). As in Step 2(a) you’ll need to know the amount of income received from each job, enter that additional amount in Step 4(c) on the Form W-4 for only one job.
Should you (and your spouse) only hold two jobs combined and income at the higher paying job is more than double the lower paying job, this option is more accurate than choosing Step 2(c). If income is similar, choosing Step 2(c) will be more accurate than Step 2(b).
Step 2(c): If you (and your spouse) hold only two jobs simultaneously, check the box in Step 2(c) on the W-4 Forms for both jobs. For this option, complete a Form W-4 for eachjob with the box in Step 2(c) checked. You won’t be required to furnish a new W-4 reflecting pay changes for either job. This option is most ideal for jobs with similar pay; otherwise more taxes than necessary may be withheld.
2. What if I have a side job and I’m not treated as an employee?
If you have income from self-employment (such as an independent contractor), you’ll generally owe both income and self-employment tax. Form W-4 is intended for employees who aren’t subject to self-employment tax.
If you’d like to use Form W-4 to make adjustments to account for self-employment income that you receive from another source, use the Tax Withholding Estimator found at www.irs.gov/W4app.
These are some of the most common questions our partners at TaxBandits are receiving from clients wanting to better understand the IRS changes to the 2020 W-4. For more information, contact TaxBandits today to see how they can simplify your tax e-filing needs!