New W-4: Adjusting your tax withholdings just changed

Adjusting how much tax is withheld from your paycheck will likely now take longer — except for working married couples — thanks to a new Form W-4 released this week from the Internal Revenue Service.

The new form is longer and gets rid of allowances that you could claim for yourself and other family members. Instead, it asks for more precise information that may require a second look at last year’s taxes. The changes to the form better reflect the President Trump-backed tax law that went into effect in 2018.

Generally, it’s important to get withholdings right. If too little is withheld, you end up owing the IRS.

For the most part, if a worker’s tax status hasn't changed from last year, they don’t need to fill out a new W-4. New employees and those who experienced a major life event like getting married or having a child need to submit a new one. Also, if you’re unhappy with your 2019 tax outcome – say, you get a smaller refund or owe money to Uncle Sam – you should also complete a new W-4.

The form is actually simpler than the one it replaced, Pete Isberg, vice president of government affairs at the payroll company ADP, told Yahoo Finance. But it will take more time for people to fill out.

“It used to be a 30-second exercise,” Isberg said. “I expect now many folks will have to dial home and ask someone to look up last year’s tax returns.”

The Internal Revenue Service released a new Form W-4 to help taxpayers accurately adjust their paycheck withholdings. (Source: IRS)

Better for married couples

The new form should be “vastly easier” for married couples who both work, Isberg said, as long as they follow the instructions. 

Gone is the messy and difficult nine-step worksheet to figure out how much each couple should withhold from their individual paychecks. Now, married working couples only need to check a box to indicate that they both have jobs and the correct withholdings will be calculated for them. 

However, potential tricky part comes in Steps 3 and 4. If a couple checks the working box, only the highest-earning spouse should fill out Steps 3 and 4, which ask for dependents, additional income, deductions, and extra withholdings.

If you and your spouse both fill out the extra income in Step 4, then too much will be withheld from your paychecks. If you both fill in deductions or dependents, too little will be withheld and you could end up with a big tax bill.

The new Form W-4 should be easier for working married couples to fill out than the previous version.

Be prepared

The best way to fill out the new form properly is to have last year’s total deductions, other income, and tax credits for dependents handy. Isberg encourages employers to allow new workers to take the form home, rather than expecting it done on their first day.

The key thing, Isberg said, is to take your time and read the instructions.

“Nobody wants a surprise,” he noted.

Janna is an editor for Yahoo Finance. Follow her on Twitter @JannaHerron.

Read more:

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNewsLinkedIn, YouTube, and reddit.