Archive for New IRS W2 Form

As The IRS Redesigns Form W-4, Employee’s Withholding Allowance Certificate, Stakeholders Raise Important Questions

Nina Olson NTA W2 Form

The IRS is re-designing Form W-4, Employee’s Withholding Allowance Certificate. The changes to this form will affect nearly every employee and employer, potentially more than once a year. When a person starts a new job or his or her tax situation changes (e.g., due to a birth, a pay raise, a marriage, or a home purchase), he or she may be required by IRC § 3402(f)(2) to fill out a new Form W-4 and give it to his or her employer. The employer uses the number of “allowances” claimed on the Form W-4 to compute (based on IRS tables) how much of each paycheck to withhold and send to the IRS.

If employees claim too many allowances, they will have too little tax withheld (i.e., be under-withheld) and also violate IRC § 3402, whereas if they claim too few allowances, they will have too much tax withheld (i.e., be over-withheld). They can avoid an underpayment penalty under IRC § 6654 if either (1) they owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or (2) the amount withheld is at least 90 percent of their tax liability for the current year or 100 percent (or 110 percent for higher income taxpayers) of their tax liability shown on their tax return for the prior year, whichever is smaller.

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