How to fill out a W-4 form in 2021
Allowances and exemptions are a thing of the past
The IRS redesigned the W-4 in 2020 to be less complicated and encourage more accurate filing. Under the new laws, filers can no longer claim W-4 exemptions, including exemptions for dependents.
Since W-4 allowances are no longer tied to these exemptions, the personal allowances worksheet is no longer required. Employees who have previously filled out a W-4 are not required to complete a new one.
What is a W-4?
A W-4 is an official tax document that tells your employer’s payroll administrator how much to withhold from your paychecks. The form calculates your withholding based on your filing status, dependents and income adjustments. You can use the IRS’s tax withholding estimator with information from recent pay stubs and your last income tax return to ensure the right amount of money is being withheld from your paycheck.
If you withhold too much, you end up paying too much taxes. These funds are refunded when you file your return, but you're basically giving the government an interest-free loan. If you withhold too little, you can end up owing a larger amount when taxes are due.
Before you begin filling out this form, you need your recent pay stubs and last income tax return. Depending on your situation, you might only have to fill out some of the following sections. Continue reading for detailed instructions on how to fill out the new W-4 form.
How to fill out W-4
A W-4 can seem fairly complex at first glance, but the new form is designed to be simple. The IRS redesigned Form W-4 to make it easier to fill out. Instead of the old complicated worksheets, employees can now answer a few questions.
Gross pay - Payroll taxes -
Other deductions = Net Pay
Filling out a W-4 is like filling out a miniature income tax return, so you need a recent pay stub and your last tax return. The form is now divided into five sections:
1. Personal information
- Single or married filing separately
- Married filing jointly
- Head of household (for example, if you’re a single parent)
Sections two through four do not apply to everyone. If you are single without any dependents, don’t have a mortgage and don’t make significant charitable donations, you can skip ahead to section five.
2. Multiple jobs or filing jointly
To complete this section, use the “multiple jobs worksheet” on the third page of the W-4 form or the IRS tax withholding estimator to walk you through how to calculate your extra withholding, which will be entered in box 4c. This determines the amount of additional taxes to be withheld from each pay period, so be as accurate as possible to avoid withholding too little or too much from your paychecks.
Section 2 of the W-4 is important because it affects your tax rates. For example, if you had 10 jobs last year and made $10,000 at each, totaling $100,000 for the year, each of your three employers assumes you are making about $10,000 for the year. In reality, you made $100,000, but your funds are being withheld as if you’re in a much lower bracket than someone who made $100,000 working one job.
If you and your spouse make around the same amount, you can check the box on 2c. If you and your spouse have a wide salary difference, find the table on Page 3.
Next, enter the number of pay periods per year for your highest paying job. For example, if you get paid monthly, you have 12 pay periods; if you get paid every week, you have 52 pay periods.
For line 4, divide the amount on line 1 by the number of pay periods. This number is the amount that you want to withhold each pay period. If you work multiple jobs, find the amounts from both and see where they intersect on the table.
You only need to fill out this section if you have more than one job or a spouse who works. If you’re single and only have one job, you can skip this section. If you are married filing jointly but only one of you works, you can also skip this section.
3. Claim dependents
This section calculates your deductions for qualifying dependents. There are two types of qualifying dependents: a qualifying child and a qualifying relative. A qualifying child must be under the age of 19 (or 24 if they’re a full-time student). The child must be related by blood or law and live with you for more than half the year with your financial support. Multiply the number of qualifying children by $2,000.
Qualifying relatives have similar requirements, but they must make less than a certain amount per year to qualify. Additionally, they are not required to live with you if you provide more than half of their financial support. Qualifying relatives are multiplied by $500, and this is added to the total from qualifying children. If you have more than three children, earn income from a foreign country, meet specific income requirements or claim select adoption or mortgage credits, you must fill out additional forms.
Enter the number of qualifying children and multiply it by $2,000. Alternatively, multiply the number of other dependents (for example, if you care for a parent who lives with you) by $500.
4. Optional income adjustments
This is the section for those with income from freelance or contract work, deductions and extra withholdings. Fill out this section if you have additional streams of income besides your primary job, such as capital gains or dividends. If you want to claim itemized deductions, complete the deductions worksheet on Page 3. You should also include any additional taxes you’d like withheld from your paycheck here.
If you have additional taxable income other than what you mentioned in steps one through three, you need to withhold taxes for that. This is the place to make adjustments and itemize deductions to make up for the deficiency. If you have additional taxable income and don't make adjustments, you will be short at the end of the year.
If you're single, don’t have a mortgage and didn’t make a sizable charity donation, you can skip this section. However, those claiming more than the standard deductions will most likely want to itemize on line 4b.
Once your W-4 is complete, sign and date the form. Now your employer has an official tax document indicating how much to withhold from each of your paychecks for tax purposes.
W-4 allowances FAQ
- When do you fill out a W-4?
- You fill out a W-4 during the onboarding process of starting a new job. You also fill out a W-4 every time your tax status changes or you need to update your withholding.
- What is net pay?
- Net pay is the amount you take home after taxes, retirement contributions and employee benefits costs have been deducted. This amount can be adjusted by increasing or decreasing withholdings on a W-4.
- How do allowances affect my paycheck?
- Each allowance reduces the amount of tax withheld from your paycheck. The new 2020 W-4 does not include withholding allowances and instead allows filers to claim dependents and other deductions directly.
- What is the difference between W-2 and W-4?
- A W-2 reports the details of your income and taxes over the past year. A W-4 tells your employer how much tax to withhold each pay period.
- Can you claim yourself as a dependent on W-4?
- No, you cannot claim yourself as a dependent on your taxes. You can only claim qualifying children or relatives.
- Do I have to change my W-4 when I get married?
- Yes. Once you get married, you should update your and your spouse’s W-4. Ask your company’s human resources department for a new W-4 to make these updates.
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