Getting the W-4 Right Is Important
Article Highlights: - W-4 Complications
- Working Spouse
- Adjusting Refund
- Other Income and Tax Issues
The problem is that as simple as the form looks, getting those entries on the form to produce the desired withholding amount can be tricky. The passage of the tax reform added additional complications, and the IRS has delayed a major revision of the W-4 until the 2020 tax year. In the meantime, taxpayers must get along as best they can using the old version of the W-4.
Even though the W-4 form itself appears to be simple, the instructions come with an extensive worksheet, which may or may not produce the desired results. In addition, there are other issues to consider, such as:
- Perhaps you desire to have a substantial refund when your taxes are completed next year. This generally requires custom W-4 adjustments, to produce excessive withholding. Keep in mind: when you have a large refund, you have provided Uncle Sam with an interest-free loan.
- Your spouse may also work, and your combined incomes may put you in a higher tax bracket. Although the IRS provides a special worksheet for married taxpayers if both spouses work, it may not always provide the desired results.
- In addition to payroll income, you may also have self-employment income, which is subject to both income tax and self-employment, and so you may require a combination of payroll withholding and estimated tax payments, adding additional complications to the W-4.
- These are just the tip of the iceberg, as there may be investment income or losses, business losses, tax credits, special deductions and loss carryovers, just to name a few more situations that could impact your tax prepayments and withholding for the year.
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