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Less Withholding With The New W-4

Level 15

Most of my W-2 clients have transitioned into 1099-R clients (and sometimes 1310 clients). So I’m probably the last to have noticed this. There may have been news stories about it last month, that I ignored.
My client who regularly received $1,700 federal refunds, because he was claiming “Single and zero” on his W-4, came up owing $82 to IRS for 2023. His withholding had decreased substantially, but he says he took no action to cause that. I looked at the new Form W-4, and noticed that withholding allowances are no longer a thing. You have to jump through some hoops if you are married, or have dependents. Enter some dollar amounts from Page 3.  And then payroll clerks (or software) have to learn a new system.
Are others noticing this change? How are you and your clients dealing with it?

2 Comments 2
Level 15

I have noticed this over the years Bob, including this year. They keep playing games with the withholding. Clients are getting their refunds up front, I.E. in their paychecks, and that is what I tell them when their refund is greatly diminished compared to prior years. If some of them want to receive a larger refund for 2024 and forward, I inform them to tell their employer to add a certain amount (or percentage) of withholding to each pay period. If they are collecting Social Security and still working, then they can also increase their social security withholding.

Level 13

The W-4 change happened in 2020.  The "new and improved" form was redesigned to give taxpayers more money in their paychecks rather than using the IRS as a savings account.  There was an informal transition period as payroll software slowly got updated/reprogrammed.  Most employers within the past couple years required employees to fill out new W-4 forms as their software no longer supported the "old" calculation.

I'm also seeing these transitions with the "new and improved" W-4P so it'll hit your 1099-R folks as well.  You know, just in time for personal exemptions to come back in 2026, right?