In our previous blog we addressed some common questions our friends at TaxBandits are being asked about the IRS’s updates to the W-4 Form. The W-4, as we discussed, is required of anyone whose employer withholds a federal tax from their paycheck.
Let’s look at a few other questions being asked:
1. When would I need to increase my withholding?
Generally, you should increase your withholding anytime:
you hold more than one job or you and your spouse both have jobs or
you have income from sources other than jobs or self-employment that is not subject to any type of withholding.
If you choose not to make adjustments to your withholdings for these situations, you could potentially find yourself owing additional taxes when filing your return, in addition to any penalties. If you have income from anything other than a job, you’re allowed to pay an estimated tax instead of any extra withholding.
2. Can you tell me when I should decrease my withholding?
You’ll want to decrease your withholding anytime:
you’re eligible for any income tax credits like child tax credits or in cases of credits for other dependents (Step 3), or
you’re eligible for deductions other than a basic standard deduction, such as itemized deductions, deductions for IRA contributions, or any deductions made for student loan interest (Step 4(b)).
3. If I’d like to receive a refund when I file my tax return, how should I complete the new W-4?
The new Form W-4 actually makes it easier to match your withholding and your tax liability. If you prefer to have more tax than necessary withheld from each paycheck, you’ll receive that as a refund when you file your return. To do this, simply enter any additional amount you would like your employer to withhold from your paycheck in Step 4(c).
Don’t forget, even if you don’t have income tax withheld, you may receive a refund for tax credits in cases of Earned Income Credits, Additional Child Tax Credits, or American Opportunity Credit.
4. Why do I need to account for multiple jobs when I’ve never done that before?
Your tax rate increases based on your income. So, naturally as one rises, so does the other. Since the IRS only allows for one standard deduction on each tax return, despite the number of jobs. Should you have more than one job or are married filing jointly and you and your spouse both work, more money will be withheld for all the jobs as opposed to what is withheld if each job was considered individually.
Hopefully, we were able to cut through any confusion about why the IRS is making these changes to the 2020 W-4. We’ll address more questions in our upcoming posts as we head into the tax season with our partners at TaxBandits.
As an IRS-Authorized e-file provider TaxBandits is here to help take your time back!