Maybe the treasury is reading our blog, or maybe they heard the many exasperated taxpayers and tax professionals. Either way, the new Form W-4 has been simplified in its latest revision, which is expected to be mostly finalized at this point.
No longer will you need to disclose outside income information for you and your spouse to your employer. No longer will filling out the form induce a migraine. I would say the headache has been downgraded to merely a tension headache...this is taxation after all.
Anyhow, one item they included here is especially helpful for anyone who has multiple jobs. It is very commonplace for those with 2 or more jobs to be substantially under-withheld if the total income in aggregate is below the social security wage base. This is because the withholding calculator didn't factor in that this wasn't your only job, and whereas they were withholding as if you only made $20,000 for the year, the reality may have been that you made $75,000, and were thus in higher tax brackets. As a result, multiple jobs all thinking you are making substantially less will result in you withholding substantially less. For more substantial income earners, this actually can sometimes be the opposite since the withholding rates can already be near the top PLUS the inevitable over-withholding on social security that results. So what is this item added that I was mentioning? There is now a section for you to indicate that you have another job so that the withholding calculator can take into account that you're income is probably double what it is at this job so that you withhold at a higher rate.
If you earn substantially more at one job than the other, or if you have 3 or more jobs, then checking the box probably isn't going to help you out, but there is a more advanced worksheet to help you through that. Take a look at the form below to get an idea of what we're talking about:
All-in-all, if your income & deduction situation is relatively straight-forward and you a working understanding of the basics of taxation, this new form represents a viable way to make sure your withholdings are dialed-in. If your situation is not straight-forward, don't let the form fool you into thinking you're good-to-go because the devil is always in the details. If you aren't sure whether your situation is simple enough to be covered by the inputs in the new Form W-4, then you probably need to talk to us.
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