In 2020, the IRS overhauled the W-4 form. Though it may seem familiar at first glance, nearly everything has been revamped, except for basic personal details such as name, address, Social Security number, and filing status.

As tax professionals, we often find ourselves helping individuals navigate the complexities of completing a new W-4 form. Whether it's due to starting a new job, getting married, or welcoming a new addition to the family, these life events trigger questions about tax withholdings. Advising someone to simply fill out a new form without proper guidance could lead to problems.

It's important to note that exemptions, which were once central to the W-4 and Form 1040, have been entirely eliminated. Instead, the new W-4 addresses dependents solely for the purpose of tax credits; there is no longer an exemption attributable to these dependents. Instead, users are sent to worksheets and tax tables akin to a short form tax return, particularly evident on pages 3 and 4 of the W-4 instructions.

Extra Withholding
When advising married clients, it's wise to guide them toward utilizing the worksheets and tables provided in the instructions. In the case of joint taxpayers with two incomes, it's essential to compute an amount for page 1, line 4c, labeled "Extra Withholding." 

Upon seeing "extra withholding," our clients' instinctive reaction may be, "I don't want that" or "I don't need that." Yet, for married couples, it's crucial. The new W-4 essentially acts as a miniature tax plan for dual incomes, utilizing a lookup table to calculate the appropriate "component" withholding based on an estimated joint taxable income. For singles with no dependents, however, completing the form remains relatively straightforward.

If you are a tax advisor equipped with robust, agile tax planning software, you possess the tools to help your clients and provide enhanced value and service. However, if you lack the time or are not a tax advisor, consider directing your clients to W-4Free.com, a free application that guides users through the necessary steps to generate their own W-4. This user-friendly platform is incredibly efficient, effortlessly handling worksheets and table calculations. Alternatively, you can take the reins and complete the process using this tool on behalf of your clients.

With changes to the W-4, many couples find themselves owing taxes each year, often incurring interest and penalties as a result. Proactively ensuring accurate completion of the W-4 form is not only vital for their financial well-being, but also for safeguarding your professional reputation. 

Remember, satisfied clients are more likely to remain loyal and continue engaging you for services.

Jack Hercher, CPA, owner of Hercher & Co., P.C., Greenwood Village, has been a COCPA member since 1980.