Tips & advice on getting your finances back on track.
What is a W-4 Form?
Whenever you get paid, a certain amount of income tax is automatically withdrawn (or withheld) from your paycheck and turned over to the IRS. Prior to 2020, you used the W-4 Form (also known as the “Employee’s Withholding Certificate”) to designate a number of allowances to claim which determined the amount of tax withheld from your pay.
Now that there is a new W-4 form, you no longer need to determine the number of allowances, but instead, you claim dependents and use a worksheet to claim other deductions. There are five sections to complete, but you only need to complete sections 2, 3, and 4, if they apply to you.
Why has the Form W-4 changed?
The 2017 Tax Cuts and Jobs Act overhauled a lot of tax laws, doing away with personal exemptions, and increasing personal deductions. The old allowance system was tied to the use of exemptions and deductions on your tax return. Therefore, the current form at the time became inaccurate and needed to be adjusted to align with these new tax laws. The new form was introduced in 2020.
How to fill in the new Form W-4
Finding the right number of deductions for your situation is important. If you claim too many, you may owe the IRS some money at the end of the tax year (and possibly pay a penalty for your error). But, if you take too few, you will receive that money back as a tax return. In a perfect world, you will have just the right amount of money deducted from your pay and neither owe nor be owed money from the IRS at tax time. The new form makes this more likely.
Remember, if you’re in any doubt, check with your tax professional.
Read more: Tax Season Primer
Step 1: Personal Information
This section is primarily self-explanatory. You need to provide your name, address, and social security number. You will also need to indicate if you are filing as:
Single or Married filing separately – You are single (unmarried) or you are married but you and your spouse file separate returns. If you are married but filing separately, you should each report only your own income, deductions, and credits on your individual return. You can file a separate return even if only one of you had income.
Married filing jointly or Qualified Widow(er) – You are either married or a surviving spouse. For a widow(er) to use the married filing jointly tax rates on their tax return, the surviving spouse must remain unmarried for at least two years following the year of the spouse’s death to qualify for the tax status.
Head of Household – Unmarried and paying more than 50% of the costs of keeping up a home for yourself and a qualifying individual.
Step 2: Multiple Jobs or Spouse Works
This section is for those with more than one job, either married or single, or if you are ‘married filing jointly’ and both you and your spouse are employed. For the form to be accurate, both spouses will need to fill out a Form W-4 for each job.
Read more: Are You Prepared For Tax Season?
There are three ways to complete this section of the form (use only one):
1. Use the estimator at gov/W4App for the most accurate withholding for this step (and Steps 3 and 4)
2. Use the Multiple Jobs Worksheet on page 3 of the Form W-4 (see below) and enter the result in Step 4(c) on the form where indicated for roughly accurate withholding.
3. If there are only two jobs with similar pay, check the box on the W-4 for both jobs.
To be most accurate, submit a Form W-4 for all other jobs. If you or your spouse have self-employment income, including as an independent contractor, use the estimator.
Step 3: Claim Dependents
Complete this section for only one of your jobs (if you have multiple), and if you have dependents. Leave this section blank for any other, lower-paying jobs. Your tax withholding will be most accurate if you fill in this section for your highest-paying job. This section accounts for the child tax credit and credits for other dependents.
Step 4: Other Adjustments
This section can make your withholding more accurate by including income and deductions that fall outside your regular employment.
1.You can include other income that you expect from outside of your job, such as retirement income, dividends, or interest, that usually don’t have withholding taken out of them. This may help you avoid owing taxes on this extra income when you file your tax return.
2. If you would like to claim some deductions beyond the standard deduction you can use the worksheet on page three of the Form W-4.
3.Extra withholding indicates that you are able to set an additional amount that you would like withheld from your pay. Most people take the standard deduction, which is what the Form W-4 assumes unless you add extra deductions here.
As with Step 3, if you’re filling out this W-4 for the lower-paying of your multiple jobs, you should skip this section.
Step 5: Signature
Finally, sign and date the document in section 5, then return the finished form to your HR department.
If you have any questions, you should contact your tax professional for individual advice.
Lori Stratford is the Digital Media Manager at Navicore Solutions. She promotes the reach of Navicore’s financial education to the public through social media and blog content.