One of the more frequent questions I receive from clients is how to complete Form W-4 - Employee's Withholding Certificate. I'm often asked how to complete Form W-4 when a client is faced with a new job, a major life event occurred, had a large refund or balance due on their prior return.
Each year, the IRS issues a new Form W-4, and the form was significantly modified as a result of the Tax Cut and Jobs Act of 2017 which eliminated personal exemptions. These exemptions allowed for deductions that reduced your taxable income. These exemptions were tied to allowances. Clients often ask how many allowances should I claim on my W-4? With the elimination of exemptions, the concept of allowances were also eliminated. Thus, the question as to how many allowances should you claim on your W-4 is no longer valid. The personal allowance worksheet has been removed from Form W-4.
Should you complete a new W-4? The answer is "It depends"…
- Did you get married or divorced during the year?
- Did either you or your spouse start a new job, take on a side job or start a small business?
- Did you have a child or add other dependents during the year?
- Did you have a large balance due or receive a large refund last year?
If you need to update your current withholding or have started a new job and are completing the W-4 for the first time, there are five steps to complete the W-4.
Step 1: Enter personal information - You must complete this step. If you do not complete Form W-4, your employer is required to calculate your withholding as "Single" which will withhold at the higher single rates.
Step 2: Multiple Jobs or Spouse Works - Most commonly, this step is completed by anyone who has more than one job or is married filing jointly and their spouse also works.
For this step, you only need to complete one of the three options. Options a) and b) will have you use the estimator at www.irs.gov/W4App or use the Multiple Jobs Worksheet on page 3 of Form W-4.
Per the IRS, option a) gives you the most accurate and privacy of the three options. Option b) also provides accuracy but requires manual work. Option c) which is the easiest option is also the least accurate since it assumes the jobs have similar pay. Also, checking box 2c tells your employer that you have multiple jobs. If you don't want to disclose that fact, don't check the box.
Step 3: Claim Dependents - Taxpayer with income less than $200,000 if they are Single or $400,000 if Married Filing Jointly with children under the age of 17 are eligible for the child tax credit.
Step 4: Other Adjustments - This is an optional section for other income (not from jobs) that might not be subject to withholding such as income for a side job or dividends. Or, deductions other than the standard deduction. Remember, the you are allowed to reduce your taxable income by the greater of your itemized deductions or the standard deductions.
You are allowed to request additional withholding on Step 4c.
The IRS suggests in Step 2 to only complete Steps 3 through 4b for only ONE of your jobs. Per the instructions, your withholding will be most accurate of Steps 3 - 4b are completed for the highest paying job.
Step 5 Sign the Form - Without your signature, the Form W-4 is invalid.
If you've experienced a major life event or are concerned if your employer is withholding the correct amount from your paycheck and want to avoid the surprise of a large balance due or too large of a refund, we at Clark Financial Services are here to assist you in properly completing the Form W-4. Call or text me at (708) 424-4100 or email to firstname.lastname@example.org. For more information about Clark Financial Services visit our website (https://clarkfs.com).