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A tale of two Form W-4s

January 21, 2020  |  Corey Butler

A tale of two Form W-4s When it comes to taxes and tax planning, it’s often the case of, “Out with the old, in with the new.”

But, sometimes, it’s really, “Out with the old, in with the new, and, well, in with some of the old, too.”

Let’s talk about the new federal Form W-4, which is how employees instruct employers how much tax to withhold from their paychecks, and the Form W-4MN, Minnesota’s version, which operates differently (the “old” way).

The new Form W-4

Previously, as part of the Form W-4, worksheets were offered for an employee to determine the proper amount of tax they should have withheld from their paychecks (so no money is owed or due when filing a tax return). Now, those are gone, and they’re replaced with questions that the IRS says should make accurate withholding easier.

With that, the most obvious change for most people who’ve filled out a W-4 before is the removal of allowances (perhaps you received advice from a parent — good, bad or indifferent — about the merits of claiming 0 versus 1). The IRS says this change is meant to “increase transparency, simplicity and accuracy of the form.”
This change was brought on because of changes from the Tax Cuts and Jobs Act of 2017 where a taxpayer cannot claim personal exemptions or dependency exemptions.

The new form has five steps, though only two are required to be filled out — personal information, filing status and signing your name. The other steps are for more potentially complicated situations.

“Many people will have situations in which they have dependents or additional income,” said Ann Etter, CPA, MBA, CFP, a partner at Goodney & Associates, PA in Northfield. “In those cases, the form can be challenging to fill out. Your CPA can help you by providing a tax projection or other information to assist with completion of the form.”

Form W-4MN

Form W-4MN, Minnesota Employee Withholding Allowance/Exemption Certificate, is the Minnesota equivalent to the federal Form W-4.

Because Minnesota still accepts allowances for withholding tax, the Form W-4MN must be completed to determine this. If an employee does not complete this form, then tax will be withheld as if the employee selected a single filing status with zero allowances.

Also, according to the Minnesota Department of Revenue, an employee might need to file a Form W-4MN if they:
  • Claim fewer Minnesota withholding allowances than federal allowances on a 2019 or prior year Form W-4.
  • Claim more than 10 Minnesota withholding allowances.
  • Request additional Minnesota withholding to be deducted each pay period.
  • Claim to be exempt from Minnesota income tax withholding.

Do I need to file new forms?

No, if you are still with the same employer you were with in 2019. However, anyone who starts a new job in 2020 or later will need to fill out new forms.

Either way, it’s always wise to examine your tax planning situation based on your prior year’s tax liability. Did you end up owing last year or this year? You can adjust your withholding and pay more taxes throughout the year to avoid the unwanted payment. Did you get a refund? Well, you can receive (that is, keep) that money throughout the whole year because a refund means you overpaid your taxes through your paycheck. You can read more about why or why not a certain approach to withholding and if your tax liability is the right fit for you in a previous Perspectives blog post.

In order to change your withholding, you need to fill out a new Form W-4 and Form W-4MN. You can change your withholding anytime throughout the year, but your company may restrict how often you can do this. Talk to your company’s finance professional to best understand your options.

Consult a certified public accountant

The IRS has a tax withholding estimator available online that walks you through a series of questions to assist you in determining the proper amount of taxes to withhold.

But withholding is just one piece of your tax puzzle. A certified public accountant can assist with completing the picture once you have your perimeter set.

CPAs are a great resource for those with complex financial situations. They can help you plan throughout the year so there are few surprises when it comes to filing a return, especially as it relates to properly withholding income taxes on your paycheck, planning for life events and helping you file an accurate tax return.

Don't have a CPA? Visit CPAmeASAP.com or call 800-331-4288 to connect with a CPA today.

Topics: Clients, Taxation-Individual, SALT

Corey Butler

Corey Butler is the MNCPA communications coordinator, focusing on providing timely and relevant content for members in both print and digital mediums. He's also the person behind the wildly successful Taxline, which has been going for more than 25 years. Corey keeps busy outside of the MNCPA spending time with his wife and children, volunteering in his community and catching up on long-lost hobbies. He also mows his yard. Corey enjoys the works of John Steinbeck and J.K. Rowling, and Paul Bunyan, Robin Hood and Santa Claus lore. You may reach him at 952-885-5533 or cbutler@mncpa.org.

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