Posted by Raven Skylar Tax & Consulting, LLC

Paycheck Checkup: Why You Need it as an Employee

Paycheck Checkup: Why You Need it as an Employee

Many people are guilty of not updating their W4 for a long time. W-4, for many people, is like a set-it-and-forget something, especially if they have no meaningful life-changing event like having kids or getting married. However, since the tax reform bill of 2017, Uncle Sam encourages everyone to have a paycheck checkup to ensure that what they withhold is correct.

This article discusses everything that has changed and how to ensure you have the correct tax amount.

 

2020 W4: What Changed?

The Tax Job and Cuts Acts come with many changes that affect almost everything about the taxpayer's return. Here are significant changes in the tax reforms:

  • Personal deduction disappeared 

  • Child tax credits increased 

  • Standard deduction increased

  • Updated tax brackets and rates

  • Extra credits for dependents 

Due to these changes, Uncle Sam updated its tax withholding tables and made available some W4 revisions, which reflected the changed tax laws.

 

The implication of the 2020 W-4 for the employer 

Even though not all taxpayers will have to submit a fresh W4, employees must review their withholding to know if they have to submit a new one. The following categories of people are advised to check their withholding:

  • Families with two-income

  • People having more than one job 

  • People who work seasonally or occasionally in a year

  • Families with dependent 17 years and above

  • Families that want to claim the Child Tax Credit

  • People with a complex tax situation or a high tax return 

It is essential to check and adjust the withholding as soon as possible. There is a possibility for adjustment should they withhold little, which will help avoid a penalty when filing the following year. Also, excessive withholding can be adjusted, which gives them more money in their check. 

Whatever it is, adjusting early gives enough time for even withholding in the year.

 

Exploring W-4 Changes: How Employers Can Help Workers 

Workers might require support as they try to understand the method of checking up their paycheck. Guiding them will make the process less complicated, and as such, here are things you should do:

  1. Remind your employee to have their paycheck checkup. This guide from Uncle Sam will provide enough guidance. 

  2. Direct them to IRS’s Tax withholding Estimator, which will help correctly determine the withholding amount 

  3. Refer them to Publication 15-T that explores how to estimate withholding with the percentage method

  4. Let your workers know that the accuracy of the withholding calculator is a factor in the accuracy of their answers. As a result, guessing answers will not give an accurate response. 

  5. Employees with complex tax situations can make use of Publication 505. The instructions on the publication will help such employees estimate the correct withholding amount rather than the W-4 withholding amount. The following categories of employees will benefit from publication 505: Taxpayers:

  • With self-employment tax debt

  • Having an alternative minimum tax

  • With the tax on unearned income for their dependents 

  • Having qualified dividends or long-term capital gains. 

  1. Get the 2020 W4 to your workers if they need to make changes

Keep yourself updated on the latest tax reforms by constantly checking the tax reform page and exploring the recommended tips. Your worker will benefit from any important information you shared.

 

Conclusion 

Taxes, as evident to everyone, are complicated. However, you, as an employer, can help your workers with their paycheck check-up process. With this, you are saving them from unnecessary headaches when it comes to tax time. 


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