Feb 12, 2021

2021 W-4 Adds New Steps For Employees

After significant changes to the W-4, Employee's Withholding Certificate, for 2020, the IRS made very few changes to the 2021 W-4. The redesign attempts to make it easier for employees to understand and complete the form. It also incorporates the ability to include marital status in their choices to match the 2021 Publication 15T, Federal Income Tax Withholding Methods.

The W-4 is completed whenever an employee starts a new job or modifies their withholding status and is an important compliance piece for payroll administrators. 

2021 W-4 Easier For Employees

The new W-4 is intended to be easier for employees to fill out and to accurately tell their employers how much federal income tax they want to be withheld from their pay. Employees can elect to withhold federal income taxes for 2021 based only on marital status. If they choose this option, the employee completes only Step 1 with their name, address, Social Security number, and filing status, and Step 5, where they sign and date the form. The result should be less confusion and less time spent navigating the form. 

Steps 2, 3, and 4 can require more work for taxpayers with more than one job, have dependents, and/or a working spouse. 

2021 W-4 Tax Withholding Estimator

Employees that are married, have dependents, hold more than one job, or have a spouse who also works will need to complete Steps 2, 3, and 4. They may also use the Tax Withholding Estimator to get the most accurate withholding.

The Estimator is quite detailed and will require information from current paystubs, any bonuses expected for the current year, retirement or other income, contributions to 401K, child-care, health insurance, and more.

Steps 3 and 4 are straight forward. Step 3 is used to claim deductions for dependents. Step 4 allows for additional income with no withholding, deductions outside of standard deductions, and additional withholding the employee may want to add to the calculated withholding amount.