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Avoid tax refund surprises by filling out this new form

There's a new federal income tax withholding form, and a good reason to fill it out fresh this year.It's the first major update to the...

Posted: Jan 5, 2020 10:31 AM
Updated: Jan 5, 2020 10:31 AM

There's a new federal income tax withholding form, and a good reason to fill it out fresh this year.

It's the first major update to the form since Congress made sweeping changes to the federal tax system in 2017, backed by President Donald Trump.

While a majority of filers owed less in federal taxes last year after the legislation took effect, many were surprised to get a smaller refund than they expected. Filling out the new withholding form, known as the W-4, could fix that problem by making sure the right amount is withheld from your paycheck -- even though filers are only required to fill out the form if they are starting a new job in 2020.

"There's more incentive now to adjust your W-4 than last year," said Nathan Rigney, lead tax research analyst with H&R Block's Tax Institute.

Even less money might have been set aside from your pay last year because of when the new withholding tables took effect, he said.

Getting a smaller refund isn't a bad thing, and suggests your withholding was in line with how much you owed. But it could be a surprise for taxpayers who were expecting a bigger check back from Uncle Sam after filing their returns -- and filers who wind up owing a lot when they file their taxes could get hit with penalties for withholding too little.

The new W-4 form looks significantly different than the one taxpayers have been filling out for decades. It adds some steps, but only if they apply to your tax situation. Here's what you need to know:

'Allowances' are gone

The old form focused on how many "allowances" a filer was claiming, but that question no longer exists. While it was common for taxpayers to simply enter one allowance for each household member on the old form, that wasn't exactly how the form was meant to be filled out -- and certainly doesn't align with the tax law.

Allowances were tied to the number of personal exemptions you could claim, which were based on the number of dependents. But the new tax law eliminated personal exemptions and, instead, increased both the standard deduction and child tax credit.

Now, the form directly asks how many children and dependents you have -- and asks you to multiply that number by the amount of the federal tax credit.

Do you work more than one job?

Instead of filling out a separate worksheet, now a filer can simply check one box if they work two jobs -- or if they have a spouse that works.

If you work more than two jobs (or don't want your employer to know you earn income from elsewhere) you can still fill out a worksheet to determine how much extra you should have withheld.

But you don't have to fill out every question

The form is divided into five steps, but if your tax situation is fairly simple you can skip the questions about other income and dependents. Your withholding will be based on the standard deduction, with no other adjustments.

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