Don’t get spooked by changes in a tax form, even if they could potentially turn your life upside down or get your employer audited.
At least that’s what tax professionals and government officials say about the IRS’s updated employee tax withholding form W-4. It is recommended for new employees. If they don’t use it and use an old version of the form, they will have the standard deduction and no allowances. It is not required but it also recommended for old employees to ensure proper withholding numbers.
The Internal Revenue Service says the form is designed to make American taxpayers’ lives easier.
The Taxman Speaks
“The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing the burden for employers and payroll processors,” said IRS Commissioner Chuck Rettig.
The revamped form is designed to ensure that withholding numbers are just right—not too much, not too little—given the Trump administration’s 2017 tax changes, which cut rates but also ended or reduced some deductions.
“The problem with the old W-4 form is that many employers were withholding based on the idea that this was the employee’s only job and sometimes it wasn’t,” says Bernard Kiely, a Morristown, New Jersey CPA.
The Solution Could Cause More Problems
The new W-4 could be a problem for both the company and the worker.
“Employers must accurately apply input from Forms W-4 and calculate withholding in accordance with the new formulas and instructions. Employers may be held liable for amounts that should have been withheld but were not,” according to Pete Isberg, president of the National Payroll Reporting Consortium.
And some full-time employees, with second jobs, might not want to disclose to primary employers that they moonlight. “They might not even want their spouses to know that they have extra income,” says Alice Jacobsohn, an American Payroll Association spokeswoman.
For taxpayers, proper withholding is an issue at tax filing time. Last year, with the new lower rates, many Americans were surprised when they filed their tax returns in the spring. They found that, despite low tax rates, they were getting a smaller than expected tax refund. And, in some cases, they found themselves having to pay more taxes. The latter was the result of inaccurate withholdings.
Not sure if you want to use the new form?
The old one can be used by the employer even if it turns out too tax much is withheld.
“The IRS certainly won’t object if you are overpaying,” Jacobsohn notes. “You will be giving them an interest free loan. Some people actually look upon it as a kind of savings, which it is not.”
Still, Jacobsohn reminds taxpayers that those who haven’t adjusted withholding and who underpay by large amounts will incur penalties. Remember the goal should be to have enough withheld over the course of the year so that you neither owe too much extra in taxes or are getting a big ta refund.
In the case of the latter—letting the government take much more than it is entitled to each pay period over the course of a year—you gave the government an interest free loan. And the government—which loves extra money that belongs to you—usually is in no hurry to pay you back and without interest. In the case of the former, not having enough withheld, the government will recover all its taxes and will sock you with a penalty. Either way, it is a bad deal for the taxpayer. Hence, he or she should ensure that neither gross overpayment or underpayment is taking place.
Do the math because it is your money but only if you ensure that your government isn’t taking more of it than it is legally to do so. And believe me, legally or otherwise, governments both left and right love to take more and more of our money. That’s because they have all run up huge debts paying for this leviathan—this huge, ever growing welfare/warfare state—that our descendants will be stuck paying for and some of whom will wonder why we were such reckless spenders.
Do want to figure it out your withholding on your own?
Take your most recent pay statement and go to IRS.gov. Review the numbers with its Withholding Calculator.
“The tool is useful,” Kiely says, “because you answer the questions and the tool does all the work.”
The tool, the IRS says in a release, “allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.”
This might even de-spook the average taxpayer who lives in fear of that letter with the IRS logo.