If you withhold too much of tax, you get a hefty return the next year. If you withhold too little you would get less return. Yet, how much tax is to be withheld so far depended on your paycheck, your claims of allowances and your deductions; not anymore. The new W-4 Draft for 2020 proposes to tighten the leash on those who find ways to evade personal tax.

Comprehensive Statement Of Income, Expenditure, Exemptions, and Credits

The new form W-4 Draft for 2020 whose draft has been released for comments of the common public, proposes to make people account for various sources of income during tax filing. The salient points of the draft are given below:

• You need to account for the number of job holders in your household and also spell out the deductions you would eventually claim.
• It also wants you to account for income for which you are not withholding any tax.
• It also proposes to claim the income of dependents of taxpayers during tax filing.
• Take into account $2000 child tax credit for each child
• Take into account $500 for qualifying dependents.
• Account for details of “other incomes” like dividends, interests, retirement income, etc., from which tax has not been withheld.

The Repercussion

Implementation of the draft W4 form can be seen as an extension of changes made through the Tax Cuts And Jobs Act. Through this law, the number of standard deduction was doubled, but personal exemptions were eliminated and limits were put on certain deductions. The move can be hailed as a move towards more transparency and accountability in tax withholding. This means people would now be more careful while tax filing and will bring all the income sources, claims, credits, and deductions comprehensively.

A possible repercussion of this is that you may need to withhold more tax since you have to account for a number of incomes and credits and also list all the deductions. This can increase your tax withholding.  

In fact, there is no doubt that this will lead to enhanced tax withholding. However, whether you are in for a bigger tax refund in 2020 than this year is not entirely clear. Withholding the right amount of tax can make a large difference, i.e different between getting a refund or needing to pay the taxman.

This means that you need to calculate all the exemptions, deductions, credits and income sources including income of dependents in order to arrive at the right withholding amount. However, in 2020 being the first year when the new form W4 is proposed to be introduced, people are more likely to withhold more of federal income as tax than this year or previous. This may give rise to an appreciable amount of tax refund.

Conclusion

However, a tax refund, as you know is an interest-free refund. This is why you need to make sure that you itemize all the deductions and account for all the household incomes, credits, and others. This will make sure that you keep less interest-free money in the taxman’s kitty for one year.