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Form W-4: Definitions, Tips and Important Updates

In my career of over two decades in the tax accounting and payroll industries, I’ve experienced many changes to tax laws and regulations. Here’s advice that applies to every business: Leaders — especially those in HR — should understand tax updates and how they affect their workforce.

Don’t worry if you’re unsure where to brush up on your knowledge. I’m happy to help get you going, starting with one of the most common tax forms.

Here’s what you need to know about Form W-4.

What is Form W-4?

The goal of the W-4 has always been to ensure tax withholdings align with the employee’s ultimate tax liability. It does so by giving instructions from the employee to their employer about their situation so the employer can properly calculate withholding from each employee’s paycheck. Though the W-4 has evolved over the years, its purpose is consistent.

In the summer of 2019, the IRS proposed an important revision to the W-4 that went into effect on Jan. 1, 2020. The 2020 W-4 reflected the suspension of personal allowances under the Tax Cuts and Jobs Act and requires a significant amount of input from employees.

The revised 2020 W-4 was the form’s first major update since the Tax Cuts and Jobs Act was signed into law in 2017, and it was reformatted to increase transparency, simplicity and accuracy of payroll withholdings.

How has Form W-4 changed in 2022?

While much of the 2022 W-4 remains the same, we need to consider some notable adjustments. Specifically, the standard deductions for each filing status have increased slightly:

FILING STATUS 2021 TAX YEAR 2022 TAX YEAR
Married filing jointly or qualified widower $25,100 $25,900
Head of household $18,800 $19,400
Single or married filing separately $12,550 $12,950

 

Previous updates to the Form W-4

2021 Form W-4

The primary change to 2021’s W-4 involved annual adjustments to its taxable wages and salary table on the fourth page that are used for the Step 2(b) Multiple Jobs Worksheet. Slight adjustments were also made to the standard deductions for each of the three filing statuses, but the form itself was structurally unchanged.

2020 Form W-4

2020 marked a massive overhaul to the W-4 in an attempt to better align income tax withholding to the new requirements of the Tax Cuts and Jobs Act. This version of the form ended withholding allowances and brought much-needed clarity, replacing previous worksheets with easier-to-answer questions.

""First, it added the “Head of household” withholding table to the previously existing “Single” and “Married filing jointly” options. This W-4 also featured breaking the W-4 into five “steps” to account for:

1. Personal information

2. Multiple jobs or income from a spouse’s job

3. Credits for claiming dependents

4. Optional other adjustments, for other income and deductions or additional withholding requested

5. Employee’s signature

This new format also included detailed worksheets for Steps 2 and 4, where employees could “fine-tune” the instructions to their employer to better align their paycheck withholding to the factors that would ultimately affect their true, end-of-year tax liability as calculated on their Form 1040 individual income tax return.

2019 Form W-4

The changes with the 2019 W-4 were annual increases to income ranges used in the Personal Allowances Worksheets for determining the allowances for Child Tax Credit and Credit for Other Dependents and the annual adjustments to standard deductions in the Deductions, Adjustments and Additional Income Worksheet.

2018 Form W-4

Despite the Tax Cuts and Jobs Act of 2017, many of the W-4’s most significant, changes to the Form W-4 wouldn’t occur until 2020. But the form still carried notable differences in its calculation worksheets. These updates allowed for:

  • increased child tax credits
  • adjustments claimed for other dependents
  • a new “other credits” line

For a comprehensive overview of each year’s Form W-4, visit the IRS’ website.

How do employees fill out the 2022 Form W-4?

Your employees may have questions about their W-4. Consider these five steps:

1. Verify personal and demographic information. Employees will file as “Single or married filing separately,” “Married filing jointly or qualifying widow(er)” or “Head of household.”

2. Account for multiple jobs. The employee will follow the instructions for only one of the following three choices:

  • Complete an estimator on the IRS website and enter the results in Steps 2, 3, and 4 on the W-4.
  • Complete the Multiple Jobs Worksheet on page 3 of the W-4 and enter the result in Step 4(c) of the W-4.
  • If the employee has exactly two jobs, OR the employee and their spouse have a total of exactly two jobs between them, the employee would check the box in this step. If the employee checks this box, they can expect a larger withholding amount from their paycheck. The employee’s filing status and income will determine the actual amount withheld.

3. Claim credits against withholding by claiming the number of dependent children and other dependents. The more dependents claimed in this step, the lower your employee’s withholding will be calculated on each paycheck.

4. Make other adjustments. Employees may enter information about any other income, deductions or additional withholdings they need based on the worksheets in the W-4 instructions. Using the Step 4(b) Deductions Worksheet, the employee can fine-tune their withholding using their estimated itemized deductions rather than the standard deduction.

5. Sign and date the form.

Consider using an effective tax management tool to streamline this process.

Do employees need to fill out a new Form W-4 every year?

While existing employees don’t need to file a new W-4 every year, new hires and current employees who need to make changes must use the updated 2022 W-4. Employers must honor valid, pre-2020 W-4s on file if there are no changes. Employers may ask, but not require, employees to replace existing pre-2020 forms. They may not treat employees with older forms as failures to submit. (Except for those who claim the “Exempt” status; they are required to re-submit by Feb. 15 each year.)

Use these helpful resources to guide your Form W-4 discussions:

DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.

About the author
Author picture, Sam McClure
Sam McClure
Sam McClure is a CPA and Paycom’s Director of Tax Operations. With nearly 30 years of Big Four accounting experience, Sam oversees the company’s strategic tax plan and has served in this capacity since February 2021. Previously, Sam held various leadership roles beginning in 1990 at Pricewaterhouse Coopers, 1998 at M-D Building Products and 2002 at Ernst & Young. Sam received a bachelor’s degree in accounting from Oklahoma State University and master’s degree in accountancy from the University of Oklahoma. He is a member of the American Institute of Certified Public Accountants and the Oklahoma Society of Certified Public Accountants. He’s been an active supporter of Positive Tomorrows, serving as treasurer, board member and finance committee chair. He’s also been a member of the advisory board to the OSU School of Accounting and the Norman Public School Citizens advisory board. Sam has authored content published in various business journals regarding family businesses and tax reform.