Impact of Form W-4 on Federal Income Tax Calculations
It has been two years since congress and the IRS have overhauled the tax code. The Tax Cut and Jobs Act (TCJA) created changes in the tax code that impacted personal income taxes and created a new Form W-4.
Although employees were not mandated to complete a new Form W-4, due to the changes in the tax code,
many financial advisers recommended they do so to insure the most accurate federal withholding calculation. The new Form W-4 can be a bit daunting as it is vastly different from its predecessor, but was designed to gather information to accurately calculate payroll federal withholding tax.
As a consequence of not completing a new Form W-4 as recommended, many employees may find that their
withholding for federal income tax may not be as accurate as they would like. According to the IRS an
employee should consider completing a new Form W-4 if the following conditions exist:
- Are a two-income family or someone with multiple jobs
- Work a seasonal job or only work part of the year
- Claim the child tax credit
- Have dependents age 17 or older
- Itemized your deductions in previous tax years
- Have high income or a complex tax return
- Had a large tax refund last year
- Had a tax bill last year
To assist tax payers in determining how to complete a new Form W-4, the IRS has developed a 15 minute online wizard called the Paycheck Checkup that will take you thought a series of questions to determine the best way to complete the new Form W-4.
Additionally, tax payers may also read IRS Publication 15-T to learn how federal income tax is calculated and can also utilize the IRS Tax Withholding Estimator to determine the amount of their federal income tax per pay period based on their Form W-4.
Namely does not provide legal, accounting, or tax advice. Please consult with professional counsel for any tax, accounting or legal questions.
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