- The IRS released the final version of its Form W-4, which you use to fine-tune the income taxes withheld from your paycheck.
- The Tax Cuts and Jobs Act reduced individual income tax rates starting in 2018, leading the IRS and Treasury to overhaul the withholding tables and Form W-4.
- Dust off your 2018 tax return and review your 2020 withholding to avoid surprise taxes owed or lower-than-expected refunds in April 2021.
Make 2020 the year you nail your taxes: The IRS has released the final version of its new tax withholding form.
The new Form W-4 goes into effect for 2020. Employees use it to tailor the amount of income tax that's withheld from their paychecks.
The document reflects changes from the Tax Cuts and Jobs Act, the overhaul of the tax code that went into effect in 2018.
Back in 2018, the IRS and Treasury updated the withholding tables to account for these changes.
Whether you're tweaking your W-4 or you're starting a new job in 2020, you'll want to dig up last year's return to make sure you get the numbers just right.
Withhold too much, and you take home less pay but you wind up with a larger refund the following year.
If you withhold too little, you keep more of your paycheck, but you might owe the taxman the following spring.
If you were happy with how your 2018 taxes turned out and you're on the right track for 2019, you can also opt to leave your withholding ais.
"Most folks aren't affected by this, but it's the job changers and people who want to adjust their withholding," said Pete Isberg, vice president at ADP, a payroll company.
"It might make sense to pull details from last year's tax return," he said.
Remember: Changes you make to your withholding in 2020 will be reflected in the tax return you file in April, 2021.
For the most part, it's too late to make dramatic changes to your withholding for the 2019 tax year.
One key change filers will notice is the fact that the old W-4 asks for the total number of allowances claimed. The more allowances you claim — for yourself, your spouse and each dependent — the less tax you would have withheld from your pay.
Now that personal exemptions are off the table, so are the "allowances."
The new W-4 now wants you to detail the number of qualifying children in your household, as well as the number of "other dependents" you care for.
You would also be factoring in the $2,000 child tax credit for each kid under 17 or the $500 credit for other qualifying dependents.
Further, the IRS wants you to share information on whether you held more than one position or you and your spouse work and file jointly.
This way, you can pinpoint your withholding based on income earned from all those jobs.
Taxpayers can also account for income you're bringing in that doesn't have taxes withheld, including retirement income, interest and dividends.
Finally, you can list the number of deductions you expect to claim if you think you'll be itemizing. This way, you can reduce your withholding and take more money home.
If you're updating your withholding, don't go it alone.
Work with your CPA or crunch the numbers on the online IRS withholding calculator to figure out how much income tax to deduct from your pay.
Some taxpayers should pay even closer attention to their withholding.
• W-2 employees with side gigs: Got a side gig or a summer job in addition to your 9-to-5? Odds are you aren't withholding enough to cover both streams of income.
• Former itemizers: If you itemized under the old law and withheld less tax from your pay, you might need to revisit your withholding. Fewer taxpayers are itemizing under the new law now that the standard deduction for 2019 is $12,200 for singles ($24,400 for married-filing-jointly).
• Families with dependents: Previously, it may have made sense for families to have less tax withheld from their pay if they had dependents. However, the law has done away with personal and dependent exemptions. It also broadened the applicability of the child tax credit to include higher-income households.
If you haven't already made these updates to your withholding, review your W-4 now.