New w4 tax options

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kongmen

Recycles dryer sheets
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Is anyone familiar with the new (I think as of 2021) w4 withholding options?



My wife and I both started new jobs within the last 2 years and when we did our taxes this week got a very unpleasant surprise of how much we owed. From what we can tell the w4 form has changed in that it now splits the tax withholding throughout the year equally between the two individuals in a marriage whereas that used to be an individual decision.


Thanks for any replies.
 
Fill out a new W4. The easiest way to deal with it is to just keep your exemptions the same plus have an additional dollar amount withheld that equates to where you want to be on total withholding for the year. Or keep everything the same and make quarterly payments to EFTPS. There's other ways to do it but I find the ways mentioned the easiest and most straight forward.
 
cathy63 said:
The IRS Withholding Estimator is pretty good. You can find it here: https://www.irs.gov/individuals/tax-withholding-estimator

Since the year is about 1/3 over you should multiply whatever number it gives you for line 4(c) by 1.5 to get closer to the actual withholding you need for this year.
Click to expand...
If one uses that tool correctly, it takes into account the amount already withheld and the number of paychecks remaining in the year. E.g., take 2 MFJ filers, each making $10K/mo, each currently having $910/mo withheld, received 4 of the 12 paychecks for this year, and no other deductions, income, credits, etc.

The tool suggests that each filer submit a new W-4 with $994 or $995 in box 4c. If one used $994 and the other $995, the additional $1989/mo over the next 8 months would get them within $1 (maybe exactly even) when filing next year.
 
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SevenUp said:
If one uses that tool correctly, it takes into account the amount already withheld and the number of paychecks remaining in the year. E.g., take 2 MFJ filers, each making $10K/mo, each currently having $910/mo withheld, received 4 of the 12 paychecks for this year, and no other deductions, income, credits, etc.

The tool suggests that each filer submit a new W-4 with $994 or $995 in box 4c. If one used $994 and the other $995, the additional $1989/mo over the next 8 months would get them within $1 (maybe exactly even) when filing next year.
Click to expand...

Oh good! It's been quite a while since I ran it myself and I'd forgotten it did that.
 
I have been using my Federal pension to do all of our withholding for about 15 years. I set it at a number, recalculate mid year and then tweak the withholding to get close to zero by then end of the year. This year OPM stopped allowing you to pick a number. Now you have to use the IRS W-4 which is like a black box for me. Now the Retirement Service Center tells me I need to call them and they can set it to the specific amount I need, then call again if I need to change midyear. What a PITA. State tax withholding I can still set as I see fit.
 
cathy63 said:
The IRS Withholding Estimator is pretty good. You can find it here: https://www.irs.gov/individuals/tax-withholding-estimator

Since the year is about 1/3 over you should multiply whatever number it gives you for line 4(c) by 1.5 to get closer to the actual withholding you need for this year.
Click to expand...
That estimator is pretty good but I still am not sure that it gives me a way to set OPM's online W4 to get the number I need.
 
donheff said:
I have been using my Federal pension to do all of our withholding for about 15 years. I set it at a number, recalculate mid year and then tweak the withholding to get close to zero by then end of the year. This year OPM stopped allowing you to pick a number. Now you have to use the IRS W-4 which is like a black box for me. Now the Retirement Service Center tells me I need to call them and they can set it to the specific amount I need, then call again if I need to change midyear. What a PITA. State tax withholding I can still set as I see fit.
Click to expand...

donheff said:
That estimator is pretty good but I still am not sure that it gives me a way to set OPM's online W4 to get the number I need.
Click to expand...

The home page for the estimator says not to use it if you have a pension but not a job, so it sounds like it is not designed for your situation.

You're supposed to use Form W-4P for pension withholding now, so it may be that OPM has switched to that. If they have, you can enter additional withholding on line 4c, but there's no way to say "withhold a total of $x". You have to first figure out how much they'll withhold for Single or Married and enter the additional amount on line 4c.

If you're interested in figuring out how the employer/pension provider uses W-4s, see IRS Pub 15-T. The pension withholding worksheet is on page 10.
 
cathy63 said:
The home page for the estimator says not to use it if you have a pension but not a job, so it sounds like it is not designed for your situation.

You're supposed to use Form W-4P for pension withholding now, so it may be that OPM has switched to that. If they have, you can enter additional withholding on line 4c, but there's no way to say "withhold a total of $x". You have to first figure out how much they'll withhold for Single or Married and enter the additional amount on line 4c.

If you're interested in figuring out how the employer/pension provider uses W-4s, see IRS Pub 15-T. The pension withholding worksheet is on page 10.
Click to expand...
Thanks. I will take a look and see if I can figure out how to use it to get to a grand total.
 
cathy63 said:
...

You're supposed to use Form W-4P for pension withholding now, so it may be that OPM has switched to that. If they have, you can enter additional withholding on line 4c, but there's no way to say "withhold a total of $x". You have to first figure out how much they'll withhold for Single or Married and enter the additional amount on line 4c.
...
Click to expand...

Do you have any idea why they don't let you just specify a dollar amount? That would be ideal for me.
 
The IRS Withholding Estimator says " If you have Social Security or pension income and you prefer to have tax withheld from your job to cover that additional income, select 2 or more sources of income, and enter information for your job first. After that, you will be able to enter your Social Security and pension income."



We have a pension but are not interested in covering the pension tax withholding through our jobs as we prefer to leave the tax withholding to the pension grantor since it's been doing a good job with no complaints from us.


I'm sure there is a way to use this calculator to estimate the withholdings from ONLY our jobs while allowing the pension grantor to continue withholding taxes for it but I'm probably overlooking which fields to engage and which ones to leave blank.


If anyone knows how to accomplish this please chime in.


Thanks for any replies.
 
Gumby said:
Do you have any idea why they don't let you just specify a dollar amount? That would be ideal for me.
Click to expand...

No idea. If it were up to me, that would be an option. Of course I also know that most people who attempted to use it would do it incorrectly.

I think it would be possible to create a spreadsheet using the worksheet in Pub 15-T that would take the filing status and desired annual withholding as input and give you the number for line 4c.
 
kongmen said:
The IRS Withholding Estimator says " If you have Social Security or pension income and you prefer to have tax withheld from your job to cover that additional income, select 2 or more sources of income, and enter information for your job first. After that, you will be able to enter your Social Security and pension income."



We have a pension but are not interested in covering the pension tax withholding through our jobs as we prefer to leave the tax withholding to the pension grantor since it's been doing a good job with no complaints from us.


I'm sure there is a way to use this calculator to estimate the withholdings from ONLY our jobs while allowing the pension grantor to continue withholding taxes for it but I'm probably overlooking which fields to engage and which ones to leave blank.


If anyone knows how to accomplish this please chime in.


Thanks for any replies.
Click to expand...

You can use the tool and just tell it you don't have any SS or Pensions. In that case it will calculate withholding from your jobs as if they are your only source of income, which sounds like what you want it to do.
 
donheff said:
I have been using my Federal pension to do all of our withholding for about 15 years. I set it at a number, recalculate mid year and then tweak the withholding to get close to zero by then end of the year. This year OPM stopped allowing you to pick a number.
Click to expand...

I do mine this way as well with all withholding from Fed pension. Once you have a starting place for withholding, you can just change the additional $ amount to increase or decrease the total withholding. You have to be careful to fill out the revised form (on OPM website) exactly the same except for the additional withholding amount.
 
Cathy thank you. Yes that's what I want but I just didn't know if I had to include the pension income for accuracy.
 
Well, I ran it through with only our two jobs minus the pension for 2023 and (even though with or without the pension we remain in the same tax bracket) according to the calculator we will only owe a few hundred.



In 2022 with the wife doing our taxes on turbo tax (including the pension) we owed several thousand as in at least 10x as much. We did do a 70k roth conversion but paid $16,400 in that same quarter on the EFTPS web site out of savings and she reported it on turbo tax. The roth conversion took us from the 22% bracket to the 24% bracket but I think we accounted for that in our early IRS payment.



Something is not adding up.
 
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donheff said:
I have been using my Federal pension to do all of our withholding for about 15 years. I set it at a number, recalculate mid year and then tweak the withholding to get close to zero by then end of the year. This year OPM stopped allowing you to pick a number. Now you have to use the IRS W-4 which is like a black box for me. Now the Retirement Service Center tells me I need to call them and they can set it to the specific amount I need, then call again if I need to change midyear. What a PITA. State tax withholding I can still set as I see fit.
Click to expand...

I fully agree that the OPM site has become a royal pain in the butt. All I want, and have been doing for 20+ years of CSRS retirement is to plug a number and done. I know exactly what I want withheld. My work around is to have zero withheld from my pension and use my RMDs for withholding each December.
 
The old w-4 with allowances actually seemed easier.

Of course, the last 15-20 years of my working career I just gave a per paycheck withholding number on W-4 to my payroll person and she dropped it into the payroll software, which allowed this. Easiest ever.

Now it is a bit more complicated as have to decide how to pay also.
 
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