How to Fill Out the Federal W-4

The Federal W-4, Employee’s Withholding Certificate, changed significantly in 2020. Many of us have not had to fill one out for years, but employers may start requiring these forms to be filled out soon. What does this mean for you?

The new W-4 was created with a new withholding calculation meant to more accurately calculate the tax to withhold on your paycheck. Without understanding this form, the entries made can have a large impact on your tax return when you file.

The original Federal W-4 marked if you are single or married filing separately, married filing joint or a qualified widow(er), or Head of Household. This has not changed on the new Form W-4, Step 1. What is next on the Form has changed drastically.

You were able to determine the number of dependents you wished to claim on the old form. The lower the number of dependents, the higher the withholding on your paycheck. The new form does not have a simple number of dependents, but 3 steps (step 1 is your personal information and filing status mentioned above).

Step 2 has to do with the number of jobs you, or your spouse, work during the year. Many taxpayers do not do anything in this section, which can cause a problem. If you work more than one job, or are married and you both work, there is an important entry to make. Step 2(c) describes that there is more than one job in the household and has a checkbox at the end of the statement. Checking this box appears to be similar to the old form Married with 0 dependents.

Step 3 is another section that can have a large impact on your return when you file. This section is for dependents you claim on your return but use caution. This is a method to “advance” the credits on your return. This will significantly reduce your refund or could easily cause you to owe when you file your taxes. If you wish to maximize your take-home pay use this section but be sure just one spouse uses this on their W-4.

Step 4 is more advanced but can be used if you are familiar with this. We would advise that you consult your preparer for this section before attempting to enter. When your employer updates the W-4 in your payroll there is one last step. Look at your next paycheck and compare the withholding. Did the Federal withholding change the way you expected it to? If not, there may be an additional revision. The W-4 can be filled out multiple times to get the result needed on your paycheck.

This form can seem overwhelming, and we welcome you to contact us to discuss this form prior to giving it to your employer.