An Introduction to the IRS Form W-4
I wanted to start this week’s post by introducing why we think SimpleForms is such a needed tool for people going through the new hire process. The most important aspect of what we do right now is simplifying the Internal Revenue Service (IRS) Form W-4 and IRS Form W-9. One of the questions posed to us by almost everyone interested in our app is “Who cares about these forms enough to want a way to manage them better?”. We understand that people think about this form differently depending on their employment structure. For most long-term employed folks the W-4 is something they dealt with briefly during their last onboarding experience, and they likely haven’t thought about it since. Those that are freelancers, working side gigs, and changing jobs more frequently care more about these forms simply because they deal with them more often. Despite the prevalence of these forms, we would agree that most people still don’t think twice about whether they are filled out correctly or updated when their circumstances change. Our point is that everyone should understand how these forms work and the consequences that occur due to mistakes. We want to be the company synonymous with W-4 and W-9 help because we make it so easy and awesome to deal with dry legal tax forms.
This week I want to focus on the W-4 and we’ll do a deep dive into the W-9 in a later post.
So what is a Form W-4 exactly?
The W-4 is an IRS form that your employer requires you to complete that tells them how much money to withhold from your paycheck for federal taxes owed each year. I know when I last filled out a W-4 I took a look at it, put down some numbers I wasn’t sure I understood, and hoped for the best. I have waited every year during tax time for a surprise…either a good one or a bad one. Am I going to get a fat rebate check that will immediately go towards that next big purchase I’m planning for, or am I going to be asked to write some big checks because apparently the government has to take more of my hard earned income from me? I never had any idea that the surprise aspect of my tax experiences thus far were due entirely to my own complacency regarding the Form W-4 and my lack of seeking assistance from an accountant. This obscure form that I haven’t looked at in, literally, seven years has the power to make sure I always get a rebate at the end of the year, or at least can help me get as close to $0 owed as possible…not having to write “big” checks in lieu of smaller corrections is always a better situation.
I won’t go into all the detail that makes this form confusing, but suffice it to say that when the government asks you to determine “allowances”, “filing status” and “exemptions” (using language even accountants misinterpret) that there are many opportunities for error. The accuracy of this form is also tied to the fluid life events experienced by every person. Some common examples are getting married, having a child, working more than one job and getting a promotion. I don’t know about you, but my first thought after I got married was not going to my employer and ensuring I refiled a W-4 form! How many other people out there aren’t rushing to update this information after these events occur? The answer is a heck of a lot more than you would think.
The inaccuracies of Form W-4 across the American workforce is compounded by the fact that most employers, those making these forms mandatory, cannot provide assistance to their employees due to legal liability. Employers will always default to speaking with an accountant to fully understand the form information and to ensure it is accurately filed for each individual’s situation. There are many people who have accountants that assist them with tax returns at the end of the year, but there are also many who rely on online services to file their taxes and may not have an established relationship with an accountant who would counsel them ongoing. Among the population of people who “have an accountant” most do not leverage this resource outside of tax filing time. When you’re getting hired at a new job there are a million things requiring your focus and attention outside of this one obscure form. We are under the belief that many new hires just want to get started at their job and they are not taking the time to talk to an accountant about a document in their onboarding package. If they give more income up front or have to owe some money at the end of the year…at least it’s a correctable variable. This is cause for concern because most employees don’t know that they are subject to a $500.00 penalty if they “submit, with no real basis, a Form W-4 that results in less tax being withheld than is required” (https://www.irs.gov/taxtopics/tc753.html). I love that if you submit the form and it gives the government more money than is required, they’re totally cool with it (*totally sarcastic).
It is hard to believe that I only highlighted some major areas of concern that should be accounted for when dealing with the Form W-4. This is exactly why we built SimpleForms, because we envision a future where you do not have to deal with the complexities of such a tax form or be entirely dependent on managing it over a lifetime of work. Online services were created to disconnect tax filing from working with an individual accountant, and the arcane forms required for that process. We decided that we could create a service to alleviate the need for an accountant while you are trying to get up to speed at a new job. We took it a step further and decided to make it easier than ever to manage and submit these forms ongoing for the rest of your working life, no matter who you work for.