Form W-4 is an IRS document that lets you know how much money to withhold from your employees' paychecks for federal taxes. Your employees must complete a W-4 upon hiring.

In addition to having new hires complete a W-4, you should remind your employees to update their W-4s whenever their personal or financial situation changes. An example would be when they get married or have a child. To help your employees avoid big surprises in April, you should also encourage them to submit a new W-4 every year.

According to the IRS, employees may change their tax withholding at any time. There are also circumstances when an employee is required to provide you with a new W-4.

When to update a W-4

If an employee experiences certain changes and doesn't expect to have enough tax withheld during the remainder of the tax year, they must provide you with an updated W-4. A new W-4 is required when:

  • The employee changes their filing status:
    • From married filing jointly (or qualifying widow(er)) to head of household, single or married filing separately
    • From head of household to single or married filing separately
  • The employee or their spouse starts another job and elects to use the Multiple Jobs Worksheet or Tax Withholding Estimator to account for the other job in determining withholdings.
  • The employee or their spouse starts another job and, as a result, files a new W-4. If the checkbox in Step 2 is selected on the new W-4, the employee or their spouse must furnish a new W-4 for the first job and select the checkbox in Step 2.
  • The employee or their spouse expects a raise of more than $10,000 in regular wages (not a bonus) at a second or third job and the Step 2 checkbox is not selected on the W-4.

The employee must submit the new W-4 by Dec. 1 or, if later, 10 days after the effective date of the change. When you receive a new W-4, you must put it into effect by the start of the first payroll period ending on or after the 30th day after you received the form.

If an employee experiences any of the above changes but still expects to have enough tax withheld to cover their tax liability for the year, they don’t need to provide a new W-4. The only exception is if their filing status changes.

Redesigned W-4

For decades, the basis for federal income tax withholdings was marital status and number of allowances. But in 2017, Congress eliminated withholding allowances as the basis for federal income tax calculation. Due to the sweeping nature of this legislative change, the IRS delayed implementing the new withholding system in 2018 and 2019. A 2020 redesign of the W-4 aligned the employee’s withholding elections with the language in the federal tax code.

If an employee already has a W-4 from 2019 or earlier on file with you, those withholding elections can remain in place. The IRS is not requiring an across-the-board update to the new version of the W-4. However, a new W-4 must be filed if:

  • The employee plans to switch jobs or make changes to their federal withholding elections.
  • You are requiring new withholding certificates from all of your employees.

The new W-4 does not ask employees to indicate personal exemptions or dependency exemptions, which are no longer relevant. But it does ask how many dependents the employee can claim. It also asks whether the employee wishes to increase or decrease their withholding amount based on certain factors, like a second job or eligibility for itemized deductions.

The updated W-4 has five sections, one of which is optional.

  1. A section requesting the usual personal information that identifies the employee and indicates whether they plan to file their taxes as single, married or head of household
  2. A section for people whose circumstances indicate that they should withhold more or less than the standard amount (A spouse's income, a second job or freelance income are all factors that can be recorded here.)
  3. A section where the employee indicates the number of children or other dependents they have
  4. An optional section that allows the employee to indicate other reasons to withhold more or less from their paycheck (Passive income from investments, for example, may increase their annual income and the amount of taxes they owe. Itemizing deductions may also decrease the amount of taxes they owe. These may be reasons to adjust withholdings on the W-4.)
  5. A signature box

It is important for employees to fill out their W-4s correctly and update them as appropriate. Therefore, you should advise your employees to regularly assess whether their personal or financial circumstances warrant a new W-4.

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