author image by Falc | 0 Comments | December 20, 2021

Employers then use that information to calculate how much tax to keep out of their workers’ paychecks and send to the IRS throughout the year. Employees who have more withheld than what they owe get a refund when they file their tax return the following year. Those who don’t have enough taken out end up owing the IRS the difference during tax season.

The changes to this form will affect nearly every employee and employer, potentially more than once a year. When a person starts a new job or his or her tax situation changes (e.g., due to a birth, a pay raise, a marriage, or a home purchase), he or she may be required by IRC § 3402(f)(2) to fill out a new Form W-4 and give it to his or her employer. The employer uses the number of “allowances” claimed on the Form W-4 to compute (based on IRS tables) how much of each paycheck to withhold and send to the IRS. On December 5, 2019, the IRS released the final version of the 2020 Form W-4. The new form W-4 has been simplified to help employees reduce complexity and increase transparency. Because employees will better comprehend how to fill out the form, tax withholdings will be more accurate country-wide.

New Form W-4 Aimed at More Accurate Payroll Withholding

For example, if the Form W-4 asked employers to withhold a percentage of each payment, the exact amount would be similarly masked unless the third party also knew how much the employee was paid. Employers should be using the new Form W-4 for their new hires now, and it is good practice to have all employees fill out a new W-4 every year. This ensures that new addresses, changed marital status, new children, and changing tax liabilities are up to date on the payroll records.

  • Prior to the release of the final version, employers should continue to use the 2019 Form W-4.
  • Employers can compute withholding based on information from employees’ most recently submitted Form W-4, if employees choose not to adjust their withholding using the revised form.
  • The Tax Cuts and Jobs Act (TCJA) of 2017 caused quite a shakeup for most taxpayers.
  • The newly designed, mobile-friendly tool uses plain language and has several new functions.

However, if you’ve married, divorced, had children, changed jobs, or added a job, it’s important to fill out a new form to ensure your withholding is correct. Form W-4 is an important part of compliance landscape and completed whenever an employee starts a new job or modifies their tax withholding status. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information.

Additional Topics

This question should not be confused with the question about what tools the IRS should provide to help employees achieve more accurate withholding than the minimum required, should they so desire. Requiring everyone to understand and use complex tools is burdensome and unrealistic. The old W-4 was simple, asking whether an employee was married or single, and how many exemptions they wanted to claim.

While change can be intimidating, the overhaul of the Form W-4 doesn’t need to be. Understanding the new format and how to properly complete a new W-4 out will ensure employees have the correct amount of taxes withheld each pay period, which means a happier workforce. Steps 1 and 5 are required to be completed, while Steps 2, 3, and 4 are optional.However, should employees opt to provide information in Steps 2, 3, or 4, their withholdings will more accurately match their tax liability. The first step is necessary to provide an employee’s personal information and anticipated filing status. If the answer’s “yes,” they have to complete Step 2, and then fill out Steps 3 and 4 for just one of the jobs (for the most accurate calculation, the IRS says to use the highest paying job).

Can I Change my W-4 at Any Time?

The IRS has introduced a new Form W-4 that must be used by all employers in 2020 to better accommodate changes to the tax law. W-4s can be changed throughout the year and resubmitted to employers to reflect unexpected changes in income or life events such as the birth of a child or a marriage. The IRS is encouraging all workers to check their withholding using an online calculator so they aren’t surprised next year by their refund size. The new form will be given to workers who start new jobs starting next year.

  • Some commenters suggested most employees would rather have simplicity than perfect accuracy.
  • For decades, the basis of federal income tax withholding from employees has been marital status and number of allowances.
  • It asks a series of questions regarding taxpayer filing status, income and withholding, adjustments, deductions and tax credits.
  • Thus, substituting a simple certification that merely affirms they are asking for enough withholding (rather than allowances) could allay any such concerns.
  • The IRS helpfully provides a Tax Withholding Estimator calculator to guide employees through the process of estimating their withholdings.

Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item. But anyone who wants to update their information with their employer will need to use it and experts say many of us should. For more information on the Tax Cuts and Jobs Act of 2017 and its impact on employers and the 2018 Form W-4, download our special report here. If you haven’t already made these updates to your withholding, review your W-4 now.

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