{"id":227,"date":"2020-01-23T15:08:46","date_gmt":"2020-01-23T23:08:46","guid":{"rendered":"http:\/\/blog.paycheckmanager.com\/?p=227"},"modified":"2020-01-23T15:08:46","modified_gmt":"2020-01-23T23:08:46","slug":"learn-about-the-new-w-4-form-plus-our-free-calculators-are-here-to-help","status":"publish","type":"post","link":"https:\/\/blog.paycheckmanager.com\/index.php\/small-business\/learn-about-the-new-w-4-form-plus-our-free-calculators-are-here-to-help\/","title":{"rendered":"Learn about the new W-4 form. Plus our free calculators are here to help!"},"content":{"rendered":"

How Taxpayers Estimated Withholdings Previously<\/strong><\/p>\n

When a company hires an employee, the company is required to withhold certain taxes from each paycheck for the employee, deposit the money to the IRS, and file payroll reports (forms 941, W2, etc.).\u00a0 The company acts as an agent for the government to collect taxes throughout the year.<\/p>\n

Since no one can predict how much money each employee will earn or how much income tax the employee needs to pay until the end of the year, the withholding amount for income tax is an estimate<\/em> of the actual tax liability, which is determined when the employee files their 1040 tax return.\u00a0 The employee will then either receive a refund or need to pay additional taxes.<\/p>\n

For many years, the W-4 form lists a \u201ctotal number of allowances,\u201d a number loosely understood as dependents.\u00a0 When the income tax withholding is calculated for each paycheck, the allowance number<\/em>, marital status<\/em> and pay-cycle<\/em> determine how much to withhold to meet the estimated tax obligation.\u00a0 There are worksheets and procedures that an employee can use to calculate the proper number of allowances to use.<\/p>\n

The right goal is to pay (or pre-pay) a sufficient amount of tax from each paycheck to avoid a large tax bill and avoid possible penalties and interest.\u00a0 On the other hand, if the withholding amount is too much, the taxpayer will get a large refund.\u00a0 Refunds may feel good, but it\u2019s not financially smart.\u00a0 The taxpayer is basically giving an \u201cinterest-free\u201d loan to the government.<\/p>\n

Using the \u201cnumber of allowances\u201d method, about 73% of all taxpayers receive a refund for tax year 2018 at an average of over $2,500 dollars each.\u00a0 Historically, most employees are withholding more for income tax than their true tax liabilities.<\/p>\n

\"new-w4-2020\"<\/a>Introducing the New W-4 Form<\/strong><\/p>\n

The new W-4 form just released by the IRS for 2020 aims to calculate a more accurate tax liability by being more intuitive, clear, transparent, and straight forward.\u00a0 For example, instead of using a number of allowances<\/em> and pay-cycle<\/em>, the worksheet asks straight forward questions about multiple jobs, dependent under 17 or over 17, marital status, and it compares standard and itemized deductions by dollar amounts. The result is annualized and then applied to each paycheck by pay-cycle.\u00a0 Instead of a black box working with one number of allowances<\/em>, the new form explains, calculates, and reports the \u201cdollars.\u201d<\/p>\n

The 2020 W-4 form should be more accurate if used properly to estimate a taxpayer\u2019s income tax liability to determine proper withholding.\u00a0 If you do use the 2020 W-4, be sure to enter the additional information required.<\/p>\n

Our Calculators Eliminate the Guess Work<\/strong><\/p>\n

If you are still confused and do not want to work through the 2020 W-4 form on your own, our paycheck calculator<\/a> has incorporated all the new changes!<\/p>\n

With more information and straight forward questions, our paycheck calculator, will calculate proper withholdings to match your actual tax liability… not too much and not too little.<\/p>\n

Regardless of how you use or prepare the 2020 W-4, we need to remind you of some basic facts, and possible troubles to avoid.<\/p>\n