Every year the IRS issues a new W4 Tax Form and many people do not bother to fill it out, but reviewing it every year may prove to be beneficial although it is not a necessity. This form was redesigned only last year and there isn't much difference between the 2020 and 2021 form, but it will help the taxpayers avoid getting more tax bills. If you are an employee, you must be wondering about how it is different from the last year's version, what has changed, and more. And this blog will help answer some of these questions that you have.
The New W-4 Form: What Has Changed?
The New Employee's Withholding certificate has not changed much from the 2020 form, but it is an updated version. The W4 form title was Employee Withholding Allowance Certificate, but in 2020, allowance was removed from the title, making it Employee's Withholding Certificate. This new form is designed with the aim to simplify the process of filling out the W4 form for the employees and to improve the accuracy of the tax withholding. The personal allowance worksheet from the W4 form was removed in 2020, and it remains the same this year.
The Difference Between The Old Form And The New Form
There have been few changes in the W4 form in the 2020 and 2021 versions. And you and your employees need to understand how to fill out the new form. The new W4 form is divided into 5 steps: Enter personal information, multiple jobs or spouse work, claim dependents, other adjustments, and then sign. Most employees are only required to enter personal information and then their signature, and the other steps are reserved for those applicants that are qualified to apply for those. In this new version, employees can no longer claim withholding allowances, which means that the employees can no longer lower the amount of federal income tax that has been withheld from their wages. Instead, the employees can claim dependents or use a deduction worksheet to lower the amount of federal income tax.
The Five Step Process In The W4 Form
The five-step process in the W4 form includes the following:
Step-1: The first step is to fill out personal information, and every employee needs to fill it out. This personal information includes name, social, address, and filing status. If one fails to fill out these personal details, their withholdings can be calculated as “Single”.
Step-2: The second step is filling out multiple jobs or spouse work, this step should only be filled out if the employee held multiple jobs and if their spouses work as well. And there are three options here for the employees to choose from.
Step-3: In the third step, the employees can claim dependents if applicable. Your dependent could be your children if you are married, or even other family members who have been staying with you.
Step-4: The fourth step is also an optional section for other things that the employees may want to account for. It includes other income areas like retirement, investment, standard and any other deductions, and any extra withholdings that the employee can withhold each pay period.
Step-5: The final step is for the employees to sign the form. If this last step is not completed, the form will be invalid.
Steps one and five are the only steps that are required for the employees to fill, and the other steps are not required but they can be filled if the employee qualifies. Filling the W4 form is not a necessity, but it is best to fill out and review the form every year as the employer will continue to calculate the withholdings based on the information provided by the employee in their most recent W4 Tax Form.