"Employee's Withholding Certificate" known as W-4 is a form that allows employers to withhold and remit taxes for employees. This important document is crucial to tax processes but many are unfamiliar with how it works and what information it should contain.
Once filled, the W-4 doesn't need to be adjusted yearly if there is no change of job. If you are already employed then you don't need to fill out a new W-4 even though sometimes the IRS makes certain adjustments to the form. If you are changing your job then this will require you to fill out a new W-4.
The current W-4 now has fewer sections than the previous version. If you are not switching jobs or taking on more, then your W-4 doesn't need any adjustments. There were seven sections in the old W-4, however, effective in December 2020, the new W-4 now has 5 sections that an employee must fill out to allow the employer to withhold and pay taxes on their behalf.
What has changed on Form W-4 in 2022?
No, Nothing has changed on form W-4 since the 2020 version of the W-4 form. The option to claim personal allowances has been removed. To figure out how many allowances to claim, a W-4 used to come with a Personal Allowances Worksheet. When you claimed more allowances, an employer would withhold less from your paycheck; when you claimed fewer allowances, an employer would withhold more.
In Step 3, you will be asked to list how many dependents you have in your household.
The form also asks you if your circumstances warrant a higher or lower amount of withholding. You can now indicate whether you have a second job or anticipate itemizing deductions on your tax return for the first time.
How to Fill Out Form W-4
1. Personal Information Section
Here, you are required to input personal information such as;
- Full Name
- Social security number
- Tax filing status - indicate if you are filing as single, married, or head of household
Individuals with a simple tax situation only need to sign and date the form after completing this step.
Those with only one job, no spouse, no children, and no itemized deductions should just complete Step 1 and sign.
2. Report Multiple Income Streams
If there are multiple income streams a taxpayer might want to withhold more or less from a first job and support with the income from a second job or alternative income. Overall, ensure you report all jobs here.
But if you do not want your employer to know you work multiple jobs, then here is a trick: don't indicate the extra job(s) on the W-4, however, you'd have to make estimated tax payments directly after you are paid.
3. Indicate and Claim Dependents
This part is designed to allow you to indicate tax dependents if any and to state the number. Dependents may be your child/children or relative.
4. Optional Section
This is an optional section. If you feel the need to indicate reasons the amount to be withheld should reduce, do it here. Also if you want extra tax withheld, indicate it here too. The new W-4 now allows you to indicate expected deductions that will be itemized in the tax return.
Sign the form and include a date. On completion, give the form to your employer or payroll team. The above are the 5 sections of the new W-4 form and how you can fill it out.
How to have less tax taken from your paycheck
Whenever you get a large refund, you're essentially giving the government a free loan while living on less of your paycheck all year long. Reducing your withholding can be accomplished with Form W-4.
Here is how you can adjust your W-4 to take less tax out of your paychecks, perhaps resulting in an increased tax bill when you file your annual tax return.
- Add more dependents.
- On lines, 4a and 4c, reduce the number.
- On line 4b, increase the number.
How to have more tax taken from your paycheck
For those who had large tax bills when they filed their tax returns last year and don't want another, using Form W-4 will increase withholding. That will reduce your tax liability, or even eliminate it, in the future.
Here's how you might adjust your W-4 so that more taxes are taken out of your paychecks, maybe leading to a tax refund when you file your return.
- Reduce the number of dependents.
- On line 4c, add an additional amount to withhold.
When to Revise Your Form W-4
After the Tax Cuts and Jobs Act (TCJA) was signed into law in December 2017, the new W-4 form was released in December 2020. That law significantly changed withholding for employees.
The new W-4 form and the changes to the tax code since TCJA may be a reason to re-evaluate the W-4 you filed when you first started working for your employer.
Furthermore, if your recent tax returns reveal that you are owed a large sum of money, or that you have overpaid, changing your W-4 is a good idea.
Additionally, it is advisable to update your W-4 any time you experience a major life change, such as the birth of a child, a marriage or divorce, or a new freelance job.
When to File a New Tax Form W-4
As mentioned above, a change of job would warrant filling out a new W-4. Other life events that may affect your taxes and require you to fill out a new form are marriage, property purchase, additional freelance jobs, income raise or cut, or having a dependent( either a qualifying child or relative you support financially).
Here are some times when it will be necessary to file a new W-4:
- You get married or divorced.
- You have a child.
- You buy a house.
- You take a pay cut or get a raise.
- You work only part of the tax year.
- You have a lot of dividends.
- You or your spouse do freelance work along with regular employment.
If you start a new job in the middle of the year, the amount to be withheld will be calculated for a year and this may adversely affect your income until a refund is made the following year and things go back to normal. The alternative, however, is to write to your employer to use the part-year tax withholding method to calculate the amount to be withheld.
In conclusion, the W-4 must be filled out by every employee correctly for accurate tax payments throughout the year. An error can lead to undertaking taxes which cause you to incur penalties, or overpayment that may affect your budget (although you will get a refund the following year).
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