IRS introduces new W4 form and tax estimation tool

Few of us look forward to thinking about taxes, but the new year might be a good time to update what the IRS knows about us, with some new tools that can help avoid being caught by surprise. This year, a new W4 form and online tax-estimator are designed to help fine-tune withholdings to keep from overpaying or underpaying taxes.

Houston C.P.A. Ed Gardner says, "It becomes a more accurate calculation, but it's not necessarily easier."

To the untrained eye, the new W4 resembles any other tax form,  but it's got three important components that change how money is set aside from paychecks.        

The first is a section that, specifically, deals with households that have two or more incomes whether through a spouse or second job. When combined, taxes are held-back at a different rate and the previous W4 did not do any of that.

The second section deals with dependants, attaching a dollar figure to each qualifying one.

The third factors in other income, deductions that exceed the standard amount, and extra money you might want held-back to cover the tax bill.

Along with a new, online tax-withholding estimator, users should be able to get a more accurate estimate of their tax needs, and avoid the sticker shock that can come at tax time. "This a way to get you closer to breaking even," says Gardner.        

Anyone who starts a new job in 2020 will use the new W4, but it's not a bad idea for anyone who's had a change in their finances to file a new one with their employer. Any changes made today will affect your tax filing 'next' year.