Good News: A More Accurate W-4 Is On the Way
Form W-4 is undergoing a much-needed update between now and 2020. The IRS and the Treasury Department are working together to develop a new W-4 that is more accurate and better reflects current tax laws.
Also known as the Employee’s Withholding Allowance Certificate, form W-4 indicates how much tax money is to be withheld from an employee’s paychecks throughout the year. Generally, employees fill out a W-4 when they begin a new job; however, they are free to update their W-4 at their discretion throughout the year.
From the standpoint of the IRS, the goal of form W-4 is to get each taxpayer as close as possible to net zero when it comes time to file their yearly taxes (that is, as close as possible to neither owing tax money to the IRS nor being owed a refund from the bureau, come April 15). With the addition of the new updates that are currently in the works, the IRS will be much closer to making their goal a reality.
Though the new form W-4 has not been released yet, the IRS did offer a preview mid-way through 2018 in order to allow payroll and tax professionals to comment. Unlike the current W-4, which guides taxpayers through claiming allowances based on exemptions, the draft form worked off of the filer’s annual dollar amounts for a variety categories, such as expected income tax credits and nonwage income, among others. Requiring more information allows for a more accurate estimate of appropriate paycheck withholdings. The IRS is currently in the process of reviewing comments, and is expected to release another draft W-4 in the first half of 2019. The tax bureau intends to have the final updated W-4 ready in time for the 2020 tax year.