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VOL. 43 | NO. 22 | Friday, May 31, 2019

IRS proposes update to Form W-4 to increase accuracy

The Associated Press

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The IRS has proposed an update to the Form W-4 that it says will increase its accuracy, reduce its complexity and help avoid surprises at tax time.

However, experts caution that it will feel different to employees and may prove a bit more difficult for some.

Employees currently fill out a one-page form that asks a few questions about their household to help their employer determine how much to withhold from their pay for federal taxes. Any more complex legwork takes place on worksheets that not all workers complete.

Under the proposed update, released Friday, employees would still face a one-page form with a simple default option. But those with dependents, working spouses, second jobs or income from other sources will need to do a bit of legwork that looks different if they want an accurate amount withheld.

"It's going to be a little more work than people are used to," said Pete Isberg, vice president of governmental affairs at ADP, a payroll services provider.

The form is divided into five steps. Some people will opt to complete only the bare two-step minimum: personal information and signature. Others will want to run through the other steps to get a more accurate withholding and that will require a lot of information more akin to what you need to complete your taxes. Several experts suggested people may want to take it home to complete or get help from the IRS withholding calculator or a tax professional.

The IRS is making the update in the wake of the overhaul of federal tax law. The new tax law did away with the personal exemptions that are essentially the backbone of the current W-4. A new version of the form was needed to better reflect this and other changes to the law so a more accurate amount is withheld from pay for workers.

The proposed draft is open to public input until July. A final version will take effect in 2020. Existing employees will not have to fill out the new form, but new hires or anyone wanting to update their information will use a new form starting Jan. 1.

The U.S. Treasury and IRS worked closely with the tax and payroll community over the past year in developing the form. And several of those involved said that this form does reflect an improvement over earlier attempts, which were more onerous and raised privacy concerns. Some required employees to disclose if they held outside jobs or how much their spouse earns.

However, some people felt it didn't go far enough, such as Christine Speidel, director of the federal tax clinic and an assistant professor at Villanova University's law school. She said the IRS is clearly "erring on the side of clear language and accuracy" but it does not address all the privacy concerns and that the directions could be confusing to some users.

The IRS has provided some alternatives for workers who do not want to share certain information to their employers, offering an alternative way to calculate how much is withheld. It also has a box to check for those who want more than the suggested amount withheld, which may be popular for those that like to have a cushion in their withholdings or simply want to ensure a return at tax time.

Taxpayers who were not happy with size of their refund or amount due this tax season should do the detailed calculations, said Andy Phillips, director of federal agency relations with the Tax Institute at H&R Block. He also emphasizes that people who want to improve the accuracy of their withholdings do not have to wait until this new form comes out to update their W-4 information.

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