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When To Update Your W-4?

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What Is a Form W-4?

When starting a new job, one of the forms your employer will ask you to compete is a Form W-4: Employee’s Withholding Certificate (Available in Spanish also). How the form is filled out determines how much tax your employer will withhold from your paycheck. How much tax to withhold is based on filing status, dependents, anticipated tax credits and deductions.

In general, your employer will not send the Form W-4 to the IRS. After using it to determine your withholding, the company will file it. You can change your withholding at any time by submitting a new W-4 to your employer. If you do not submit a W-4 at all, the IRS requires the employer to withhold your wages as though you were single with no other adjustments.1

An employee may submit a new W-4 anytime they have changes in exemptions, adjustments, deductions, or credits on their return.

The Most Common Circumstances that Require a Change to Your W-4:

  • Getting married or divorced
  • Having a child
  • Picking up a second job
  • Change of address
  • Too much or too little money withheld in previous years

Do I Need to File an Updated Form W-4?  

Form W-4 was updated in 2020.  If existing employees are happy with their withholding, and their circumstances have not changed, they can leave their 2019 or prior Form W-4 in effect with their employer indefinitely

We recommend an annual review using the IRS's Tax Withholding Estimator  to make sure you're on track as far as your withholding goes (the earlier in the year the better). If your tax withholding needs to be adjusted, submit a new W-4 as soon as possible. This is especially important if you have a major change in your life, such as getting married, having a child, or buying a home. It is helpful to have the following items for reference when filling out the IRS Tax Withholding Estimator tool:

  • most recent income tax return
  • most recent pay stub (your spouse's, too, if you're married)
  • collect information for other sources of income (invoices, statements and 1099 forms)

Circumstances that Make the W-4 Simple

The new W-4 form is super simple if you only have one job and you fall into the following categories:

  • you’re not filing a joint return with a spouse who works
  • you don't have dependents you're not itemizing or claiming deductions other than the standard deduction
  • you're not claiming tax credits
  • you don't have non-employment income

If this is you, all you have to do is provide your name, address, Social Security number and filing status, and then sign and date the form. That's it—you're done!

Circumstances that Make the W-4 More Complex

Having multiple jobs or a spouse who works can affect the amount of tax withheld from your wages. Tax rates increase as income rises, and only one standard deduction can be claimed on each tax return, regardless of the number of jobs. As a result, if you have more than one job at a time or file a joint return with a working spouse, more money should usually be withheld from the combined pay for all the jobs than would be withheld if each job was considered by itself. Therefore, adjustments to your withholding must be made to avoid owing additional tax, and maybe penalties, when you file your tax return.

Workers can factor in the child tax credit and the credit for other dependents in Step 3 of the new form. You can also include estimates for other tax credits in Step 3, such as education tax credits or the foreign tax credit.

If you have multiple jobs or a working spouse, complete Step 3 and Line 4(b) on only one W-4 form. To get the most accurate withholding, it should be the form for the highest paying job.

The IRS tool is also a good option if you have privacy concerns— If you have other sources of income, you can report it as "extra withholding" on Line 4(c) for additional income/spouses’ income. The tool doesn't ask you to provide sensitive information such as your name, Social Security number, address or bank account numbers, either. And the IRS doesn't save or record the information you enter in the tool.

Don't include self-employment income as "other income" on Line 4(a), though. That line is for income that isn't from a job, such as interest, dividends and retirement income.

If you are working, it is understood that you need to file a Form W-4 as standard procedure.  However, with the new withholding requirements it is important to understand the new withholding requirements within the new W-4. Employees need to be sure they are disclosing all the required information to avoid under paying taxes throughout the year and being hit with a large tax payment at the end of the year. Understanding the reasons that require changes to your exemptions on the W-4 will keep your employees in compliance. 

For more information about streamlining your payroll contact AAP.

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Sources:

1 Internal Revenue Service. "Topic No. 753 Form W-4 – Employee's Withholding Allowance Certificate." Accessed March 3, 2021.

https://www.kiplinger.com/slideshow/taxes/t056-s001-new-w4-form-for-2020-irs-tax-withholding-changes/index.html