Starting next year, Form W-4 may look a little different.
The IRS and Treasury Department on Friday released a draft of a new Form W-4 that they say “reduces the form’s complexity and increases the transparency and accuracy of the withholding system,” according to a press release.
The new form is expected to be in use for tax year 2020.
The IRS is accepting comments via email on the draft form until July 1, 2019. Comments can be sent to [email protected] In the draft form, the IRS says it expects the form to be revised before it’s released as final.
“Treasury and the IRS will work with the tax community over the summer to finalize the improved Form W-4 in time for Americans to use the form in 2020,” according to the press release.
A Form W-4 is used so that your employer withholds the proper amount of federal income tax from your paycheck.
Filling out a W-4 properly can help you pay the correct amount of tax, avoiding underpayment of tax, which may result in a penalty; and overpayment of tax would result in receiving a refund.
What changes on the new Form W-4?
Allowances will no longer be used on the new Form W-4. For instance, the fifth line of the 2019 version of the form requires you to list the total number of allowances that you’re claiming. The proposed new Form W-4 uses a building block approach that will replace the previous worksheets, which helped you calculate your personal allowances.
The new Form W-4 uses the same underlying information. But straightforward questions have replaced complicated worksheets, according to the IRS.
While the new IRS form could make it easier for people with steady incomes to file their taxes, it could pose problems for others, says Lawrence Pon, certified public accountant at Pon & Associates in Redwood City, California.
“The withholding worksheets work fine for people who are paid the same amount each month,” he says. “The withholding gets out of whack when you have bonuses, commissions, restricted stock, employee stock purchase plans, etc.”
Will I have to fill out a new Form W-4?
Those who have filled out a Form W-4 in years prior to 2020 won’t have to submit a new form due to the redesign. Your employer will continue to withhold taxes based on your previous Form W-4 on file.
It may be a good idea to adjust your Form W-4 in 2020, if you have significant changes in your financial life or are looking to receive less of a refund in the next tax year. Using the IRS withholding calculator can also ensure a more accurate Form W-4.
In some cases, proper withholdings can help you use money that would have been a part of your income tax refund to pay down high-interest debt or other obligations.