U.S. employers must begin withholding income tax from employees’ paychecks in accordance with the new federal tax law that was signed into effect this past December. Whether you are a small business or a big corporation, the new tax changes are likely to affect you. The new law is expected to raise the number of people paying federal income tax and how much they pay, though how much and by whom is still uncertain.
Recently, the IRS issued a new Form W-4, which replaced Form W-4 with the Employee’s Withholding Allowance Certificate (Form W-4P). The IRS’s new form asks for fewer personal exemptions, which makes it much easier for employers to calculate the right amount of federal income tax to withhold from an employee’s paycheck.
If you receive a Form W-4 from the IRS, you may not be aware that it does not ask you to indicate whether you are claiming personal exemptions or dependency exemptions. This is because, with the new Form W-4, there is no option for reporting either. The new Form W-4 does, however, ask how many dependents you can claim.
The form’s most interesting change is the new line for “Dependents”. The form asks for the number of individuals who can be claimed as dependents. This number is important because people are allowed to deduct certain expenses for only one dependent, with some exceptions. The new form does not require employees to list the number of dependents they can claim on the form.
What Has Changed on the W-4?
The new version of Form W-4 eradicates the option to claim personal allowances. The W-4 is a form that many employees need to fill out each year to claim the various allowances that are deducted from the pay they receive from the Federal Government. Every employee fills out a different version of the form, depending on the allowances that apply to them, but the new version eliminates the option to claim personal allowances.
Final Words
The new Form W-4 has changed the way that exemptions are handled. In the past, taxpayers were allowed to claim a personal exemption either as a withholding allowance or not at all. Now, they are required to choose between a withholding exemption or not claiming one at all. The IRS estimates that the vast majority of taxpayers would have no change to their tax liability. However, those who have been claiming a personal allowance in the past will experience a tax increase in some cases.
Attend the Compliance Prime webinar to know more about the new version of Form W-4.
