The IRS recently unveiled it’s Draft W4 form to help taxpayers calculate the proper withholding on their paychecks. Gone is the time-honored technique of counting noses in your family and using that as the first stab at proper withholding.
The Draft Form W4 asks the taxpayer to disclose their filing status, outside income, investment income, expected deductions, spouse or other job income, and tax credits. Essentially you are doing your 2019 tax return and then giving that to your employer so they can calculate your withholding. Do you want your employer knowing that much about you?!
The IRS says that if you don’t want to open up your financial life to your boss, you can use the online Form W4 calculator and then you can tell your employer how much you want withheld on each paycheck. We did do a few trial runs at the the calculator and sadly report that the calculator is equally complex and often results in under withholding depending on how you interpret the questions. Further, when you specify a fixed dollar amount of withholding (rather than the allowance/percentage amount from the old form), the dollar amount doesn’t change if you get a raise so, you will end up grossly under-withheld at the end of the year.