Feb 15, 2023

The IRS made wholesale changes to the W-4 in 2020. The form was changed to allow more accurate withholdings due to the changes in the tax code related to the Tax Cut And Jobs Act passed in 2017. This legislation eliminated personal exemptions, increased the standard deduction, and made the child credit available to more people.

Because employers and employees were not required to fill out new W-4s and the perceived complexity of the new process, most employees did not complete a new W-4. This has caused significant confusion among employees and inaccurate withholdings.

When employees are faced with a smaller-than-expected refund or no refund at all, they typically blame the employer. 

To avoid this issue, it is recommended that employers ask their employees to review their filing status and complete a new W-4 to ensure the correct withholdings.

How The W-4 Form Changed

The Form W-4 is now a full page instead of a half page, yet it's still easier to understand. For starters, a lot of the basics have stayed the same.

• It still requires name, address, filing status, and Social Security number.
• As with the prior version of the form, the new W-4 allows the employee to claim exempt status if they meet certain requirements.

In 2019 and years prior, Form W-4 only required:

• The number of allowances claimed.
• Any additional amount to be withheld from their paycheck.
• To calculate the number of allowances, they could use separate worksheets many found complicated.

The new Form W-4 includes information about the employee's filing status, which makes the process a little more complicated. There are now three main sections used to help determine withholding. Only one section applies to each employee's situation.

Personal Information (Step 1)

To begin with, they'll need to add their personal information to the appropriate boxes. This includes:

• first and last name,
• social security number,
• home address, and
• filing status (choosing from Single or Married filing separately, Married filing jointly, or Head of household).

Multiple Jobs Or Spouse Works (Step 2)

This section is for if the employee works multiple jobs at the same time or are married filing jointly, and both the employee and their spouse are employed. To be accurate, both spouses should fill out the new Form W-4 for each job.

The form lists three ways to complete this section.

1. The most accurate option is using the IRS online estimator. 
2. You can also use a worksheet to calculate this information.
3. Or, you can check the box for step 2(c) for both jobs if there are only two jobs total and the earnings are fairly similar.

Claim Dependents (Step 3)

If the employee only works one job or is filling out a Form W-4 for the highest paying job and has dependents, the employee will claim them here. This section accounts for the tax impact of the child tax credit and the other dependents' credits.

Alternatively, they should skip this section if they are working on the W-4 for the lower-paying of your multiple jobs.

Other Adjustments (Step 4)

They can use other adjustments to make their withholding more accurate. This section offers three options.

First, they can add extra income from outside their job, such as dividends or interest, that usually don't have withholding taken from them.

• By including this, additional federal tax withholding gets taken out of their paycheck.
• This may help avoid owing taxes based on these types of other income when they file your tax return.

Next, they can account for other deductions.

• Since most take the standard deduction, that's what Form W-4 assumes unless they add extra deductions here.
• If the employee itemizes or take other deductions, they may want to add them here.

Finally, they can have more federal income tax withheld from each paycheck by adding extra withholding. They can use this to

• Receive a bigger refund at tax time, or
• Account for other tax situations Form W-4 doesn't specifically ask about.

As with Step 3, if they are filling out this W-4 for the lower-paying of your multiple jobs, they should skip this section.

Should Employees Fill Out A New Form W-4?

Those starting a new job will have to fill out a new Form W-4. A new W-4 can be filled out at any time.

If they want their federal income tax withholding to be more accurate, they should fill out a new Form W-4. This will likely result in a change in their federal income tax withholding, which impacts the amount of their usual tax refund or the amount they usually owe. Employers may suggest that their payroll or human resources department provide information to their employees about reviewing their filing status and how to submit a new Form W-4.

• Employees should pay attention to their paychecks after the new Form W-4 takes effect to see if more or less federal income tax is being withheld.
• If less is withheld, their refund may be smaller, or owe more if nothing else changes.
• If more is withheld, their refund may be larger, or they may owe less if everything else stays the same.

If they don't feel the results are correct for their situation, have them make adjustments in the other adjustments section, submit a new Form W-4, and check the results on their paycheck after the adjustment takes effect.