W-4 Form

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What is a W-4 Form? 

A W-4 Form is a form from the Internal Revenue Service (IRS) that is formally called an “Employee’s Withholding Certificate.” It is a document that has been used for a long time but has undergone significant changes since the 2017 Tax Cuts and Jobs Act, resulting in revisions and a new W-4 Form in 2020. 

The new design aims to make filling out the form simpler and more direct to the point. Also, allowances are no longer part of a W-4 Form. While a W-4 Form has since been revised, it is still used by employees to inform their employers about how much federal tax to withhold from their paycheck. 

What is the purpose of a W-4 Form? 

Many taxpayers do not fully appreciate the importance of the W-4 Form. It bears weight on how much withholding an employee will have. To put it straightforwardly, a W-4 Form is a way that employees can tell employers how to withhold. On the other hand, employers also use a W-4 Form to calculate and withhold federal income tax. 

Completing a W-4 Form is important because it is significant to your federal income taxes. Employees should not take filling out a W-4 Form lightly. For instance, if the amount withheld from your paycheck is smaller than it should be, you may find that you owe tax plus applicable interest and penalties once you file your tax return. In contrast, overpaying taxes can also be inconvenient to the employee because they will have less pay to bring home. In case of too much withholding, the employee is typically owed a refund. 

Additionally, a W-4 Form is useful for individuals who have more than one job or earn self-employment income. 

Do you have to complete a new W-4 Form every year? 

Generally, you do not have to fill out a new W-4 Form every year. If you already filed one with your employer and have no changes affecting your financial or personal situation, you do not need to file a new form. However, you may need to complete a new one if you changed employers if you need to adjust withholdings, getting married or divorced, or having a child. 

Also, employees who have previously filled out and completed Form W-4 before the 2020 redesign are not required to fill out a new copy just because of the new form unless they have adjustments to make. 

A note to taxpayers, even if you do not need to complete a new Form W-4, it is always a good idea to review your financial situation and stay updated with your withholdings. 

Is it possible to claim exemption from withholding? 

Yes, a person can claim exemption from withholding in 2021. There are two criteria for eligibility to claim exemption. First, the person must not have any federal income tax liability in 2020. Second, the person also does not expect to have any federal income tax liability in 2021. For more information on the specific IRS guidelines for exemption, please check the IRS website. 

What information is needed to complete a W-4 Form? 

There are several parts or “steps” of a W-4 Form that require different information. Here is a list of the different steps and what each is about: 

Keep in mind that employees are not required to answer or fill out all five steps. There are only two steps that are needed which are Step 1 for personal information and Step 5 for an employee's signature. If you complete only these two steps, your withholding shall be computed using the standard deduction and tax rates of your filing status. There will be no other adjustments made. 

Steps 2, 3, and 4 are only completed if they apply to the employee’s situation. If you are in the process of completing Form W-4, be sure that all the information you input is updated. This way, the withholding will be accurate as well. 

For those who are wondering if there is a computer program that they can use in filling out a W-4 Form, there is a Tax Withholding Estimator which is available at 

www.irs.gov/W4app

. This can be useful for those who have self-employment income, dividend or capital gain income, and additional Medicare tax. 

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