The W-4 form has been revamped by the IRS.
The IRS’ goal is to simplify the W-4 form to reflect a transparent withholding system. The 2021 W-4 form is still in it’s draft stages, but will most likely reflect the 2020 W-4.
Although the 2020 and 2021 W-4 forms appear different from previous forms, we’re here to break down the changes for you.
Say good-bye to allowances
When the time comes around to update your W-4, taxpayers tend to dread figuring out their allowances. The W-4 form had to undergo changes due to the Tax Cuts and Jobs Act (TCJA). The good news for some is that, there are no longer any withholding allowances due to the elimination of personal exemptions.
However, you might need to do a bit of math when determining your adjustments to income such as your dependents.
The question is, how do you fill out the new form?
5 steps to filling out your W-4
- Enter your personal information such as your filing status to determine your tax rate
- Complete the multiple jobs/spouse section if you have more than one job at the same time or you’re married filing jointly and both you and your spouse work
- Claim your dependents by multiplying the number of dependents by the child tax credit ($2,000) or other dependent care credit ($500) to provide the total
- If necessary, enter your other adjustments, such as interest, dividends and retirement income), deductions other than the standard deduction and any additional tax via part 4(a) – 4(c)
- Sign your W-4
If you’re used to completing your W-4 with just the top portion, without multiple jobs, dependents or adjustments to your income you do not need to fill out the entire form except for the signature section.
When do you need to file a new W-4 form?
You are not required to complete a new W-4 if your tax situation remains the same. Factors such as marriage, divorce, a new child, multiple jobs, a new home or other life changes could lead you to filling out a new W-4.
On the other hand, those hired in 2021 and any employee who makes withholding changes in 2021 must file a new form.
You may claim exemption from withholding for 2021 if you meet two criterion:
- Did not have a federal income tax liability in 2020
- You did not need to file a tax return because your income went under the filing threshold for your filing status
As a reminder, claiming an exemption means that you will have no income tax withheld from your paycheck. You may end up owing taxes and penalties if you chose this incorrectly. You must write Exempt on step 4(c) of your W-4 form.
Luckily, the IRS has an IRS withholding tool to assist you in determining your tax withholding. Click here to view the tool. Keep in mind, in order to use this tool, you must have the most recent pay statements for yourself/your spouse, all sources of income and your most recent tax return.
If you missed the 2019 tax deadline or any recent tax years, find out how to file by clicking here. Reach out to our customer service representatives if you have any questions.