Important Tax Filing Information
According to our tax attorneys in San Francisco, the IRS released its final version of the new W-4 form for 2020. The form features some essential changes that may impact workers and employers alike.
Some Taxpayers Surprised by Low Refund Amounts
The Tax Cuts and Jobs Act affected taxpayers for the first time last year, and many filers experienced unpleasant surprises concerning their refund amounts. The revised form was created to coincide with the new tax laws. It was also designed to make withholding more accurate and ultimately decrease the number of filers who end up receiving a lower-than-expected refund.
ADP Vice President of government affairs Pete Isberg stated that although the changes may at first cause a bit of confusion for workers, the long-term effect will be a simplified withholding process and less surprises regarding refund amounts.
Major Impact on Those Holding Multiple Jobs
The new W-4 form, which is now ready for use in 2020, features considerable improvements for two-earner families and those with multiple jobs. The primary goal of the new form is to ensure proper withholding on a weekly basis so that the filer neither owes nor is owed when April rolls around.
Some of the most significant changes to the form are new fields that taxpayers must use to indicate they are holders of multiple jobs or a member of a two-income household. This field was added to help eliminate situations where money is not withheld at the appropriate rate.
For example, a person holding two jobs, each paying $20,000 annually, may be taxed at a very low rate for each job because their overall income appears to be lower than is actually the case. However, this makes the tax filer fall short throughout the year; come April, the IRS adjusts monies owed to reflect the full $40,000 income. This is just as true for peripheral income from a side job or freelance work.
Further confusion may occur for filers in two-earner households because both spouses must check the box indicating two-income status, which is step two, but only one partner is required to fill out steps three and four.
Potential Areas for Confusion with the New Form
The new form also shifts certain calculations to employers. For instance, employers must convert full-year anticipated tax credits for the purpose of reducing per-payroll tax withholding. ADP pointed out that one area of possible confusion may be the section of the form that asks for deductions outside of the standard deduction. This area requires filers to enter expected deductions that go beyond the standard amount.
Many Changes Made Before Final Draft Released
Earlier this year, an initial draft of the new form was released for public comment but was criticized for being overly complicated and for asking filers for an excessive amount of personal information. Many other drafts were created and released to the public since then for an open comment period.
The Importance of Reviewing and Updating W-4 Forms
Tax attorneys in San Francisco say it is important to review and update withholding amounts if filers believe their end-of-year tax liability or refund was not as anticipated. Numerous filers did not review their withholding amounts leading into the current tax season, despite the IRS’s advice to do so. Last year, many people received little or no refund, and some even owed the IRS for the first time ever. Therefore, it is imperative that such individuals review and update the form to avoid a similar situation in April 2020. A withholding calculator is offered by the Internal Revenue Service which may help filers to complete the form accurately. Check it out at https://www.irs.gov/individuals/tax-withholding-estimator, or download the APP for IOS or Google Play.
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