The new year means changes to the form your employees use to determine how much income tax is withheld from their paychecks.
Changes in tax law prompted the IRS to overhaul the Form W-4 and rename it the “Employee’s Withholding Certificate.” Though the form is slightly altered most years, the intent of the redesign is to simplify the withholding process.
The IRS says the new form will improve the accuracy and transparency of the income tax withholding system.
The changeover also includes key stipulations:
- Any employee hired after Jan. 1. must complete the new form.
- Those employees who want to make adjustments to their withholding also must complete a new form.
- Existing employees are not required to complete a new form unless they want to make changes.
- Employers can continue to compute an employee’s income tax withholding based on information in the most recently submitted W-4.
While completing a revised form isn’t required for non-new hires, a “paycheck checkup” could be beneficial for employees to determine whether any withholding adjustments need to be made.
The IRS’ Tax Withholding Estimator is a useful tool to help an employee determine his or her withholding amount. Having a copy of your most recent pay stub and tax return will help during that process.
The previous method relied on worksheets to determine withholding allowances. The more allowances a person had the less income tax money that would be withheld. Now, information about dependents or deductions can be used to lower the amount of taxes withheld.
The Employee’s Withholding Certificate includes instructions for completing the form. Steps one and five are required. Steps two, three and four are optional.
The first step is necessary to provide an employee’s personal information and anticipated filing status. That helps determine standard deduction and tax rates for withholding.
Step two is used for:
- An employee who has multiple jobs.
- An employee who is married filing jointly and his or her spouse also works.
The third step is used to claim tax credits for dependents.
Step four is filled out for adjustments including:
- Additional income through interest, dividends or retirement funds.
- Itemized deductions outside of the standard deduction that would reduce withholding.
- Any additional withholding that the employee wants taken out each pay period. Use the withholding estimator for assistance.
Step five is the employee signature portion of the document.
The Frequently Asked Questions section of the IRS website may help in completing the new Employee’s Withholding Certificate.
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