How do I ensure accurate pay withholdings?
We frequently receive questions about tax withholdings and how to properly complete the W4 form provided by employers.
A lot changed in 2020, introducing an all new withholdings system and W4 form with the IRS. This was done in order to reflect the 2018 tax reform changes that got rid of personal exemptions and adjusted the standard deduction. As such, the new W4 form no longer uses “exemptions” or “allowances” to reflect withholding preferences.
Tax withholding is simply the money set aside from your paycheck to cover your estimated taxes. The amount withheld is then entered into your tax return and compared to the calculation for total taxes owed. If withholdings exceed your taxes, you get a refund. If withholdings are short of your total tax liability, you’ll owe more with your tax return filing.
The 2020 changes handicapped us a bit on advising folks with their W4 form and corresponding exemptions/allowances to claim, as exemptions/allowances no longer exist with the IRS!
Therefore, the best way to accurately complete your W4 is to use the IRS Withholding Calculator, which the IRS set up to walk you through all of the questions required for proper W4 calculations.
State W4 forms may vary, pending state compliance with IRS changes.
NOTE: W4 withholdings generally won't be able to address large bonuses or stock option exercise income. In these cases, it's best to consider making estimated quarterly tax payments.
Let us know if you have any questions on the above or regarding your specific situation…we’re happy to help!
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