As an HR administrator, you wear many hats, and “tax form expert” is often one of them. When an employee gets married, has a child, or starts a new side hustle, they come to you for guidance on updating their W-4. This guide is here to make that part of your job easier. We’ll provide a clear, step-by-step walkthrough of the current form, which has been in use since 2020. You’ll learn the key differences from the old version and get clear instructions on the most important sections, including how employees can claim dependents on w4 2020. Think of this as your cheat sheet for mastering the W-4.
> Final 2020 W-4 Released
On December 5, 2019, the Internal Revenue Service released a final Form W-4 for use in 2020. Employees complete the Form W-4 so that their employers can withhold the correct federal tax from their paycheck. A significant change for the 2020 form is that it does not have withholding allowances because employees may no longer claim personal exemptions or dependency exemptions. Previously, the value of a withholding allowance was tied to the amount of the personal exemption. For the new form, the following five steps (as opposed to allowances) are completed by the employee to determine their withholding:
- Step 1: Personal information (including marital status).
- Step 2: Multiple jobs (employee), or whether the employee’s spouse works. This step is completed if the employee holds more than one job at a time or is married filing jointly and their spouse also works. The correct amount of withholding depends on income earned from all of these jobs.
- Steps 3 and 4: Claim dependents and (optional) other adjustments (specifically (a) other income that is not from jobs, (b) deductions, and (c) extra withholding). Steps 3 – 4(b) are completed on Form W-4 for only one job, and these steps are left blank for the other jobs. (Withholding is most accurate if an employee completes Steps 3 – 4(b) on the Form W-4 for the highest paying job.)
- Step 5: Employee signature and date (signifying that all information is true and accurate under penalty of perjury).
Publication 15-T (still in draft form) assists employers in determining the amount of federal income tax to withhold from their employees’ wages. Employees who have submitted Form W-4 in any year before 2020 are “not” required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4. Read about the Form W-4, read FAQs about the form, and read about Publication 15-T.
Should You Use IRS Draft Forms for Filing?
In November and December 2019, the Internal Revenue Service released the following draft tax forms for 2019:
- Form 1095-B, Health Coverage.
- Inst 1094-C and 1095-C, Instructions for Forms 1094-C and 1095-C.
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.
- Inst 1094-B and 1095-B, Instructions for Forms 1094-B and 1095-B.
These are early release drafts of IRS tax forms, instructions, and publications that the IRS provides to the public. These draft forms may not be filed or relied upon for filing. Although the IRS generally does not release draft forms until it believes it has incorporated all changes, sometimes unexpected issues arise or legislation is passed, requiring modifications. In addition, forms generally are subject to the U.S. Office of Management and Budget’s approval before their official release, and drafts of instructions and publications usually have some changes before their final release. These early release drafts are on the IRS draft tax forms page and may remain there even after the finals are posted on the IRS final release forms page.## Why the W-4 Form Was Redesigned If you’ve looked at a W-4 form recently, you probably noticed it looks completely different. The IRS rolled out a new version in 2020, and the change wasn’t just for looks. The redesign was a direct result of a major tax law, and its main purpose is to make your tax withholding more accurate. This means the amount of money taken from your paycheck for federal taxes should more closely match what you actually owe at the end of the year. The goal is to help you avoid a surprise tax bill or a massive refund, putting more of your money in your pocket throughout the year instead of giving the government an interest-free loan. ### Aligning with the Tax Cuts and Jobs Act (TCJA) The primary reason for the W-4 overhaul was the Tax Cuts and Jobs Act (TCJA), which passed in late 2017 and took effect in 2018. This law made significant changes to the tax code, most notably by eliminating personal exemptions. The old W-4 form was built around the concept of “allowances,” which were directly tied to these personal exemptions. Since exemptions no longer exist, the allowance system became obsolete. The new form scraps allowances entirely and instead uses a more direct, five-step process to calculate your withholding based on your specific financial situation, like your filing status, income, and dependents. ### The Goal: More Accurate Withholding The old allowance system was often confusing and could easily lead to inaccurate withholding. Many people weren’t sure how many allowances to claim, resulting in either too much or too little tax being withheld from their paychecks. The redesigned W-4 aims to fix this by asking for more specific information. The IRS’s goal is to help employees have the right amount of federal income tax taken out with each paycheck. When your withholding is accurate, you’re less likely to owe a large sum during tax season or receive a huge refund, which is essentially money you could have used throughout the year. ## Who Must Use the New Form W-4? With the new form in circulation, a common question is whether everyone needs to rush to fill one out. The short answer is no, but it depends on your employment situation. The IRS doesn’t require all existing employees to switch to the new form. However, all new hires must use the redesigned version. Understanding who needs to complete the new form can help your team stay compliant and ensure their paychecks are accurate from day one. It’s also a good idea for any employee to consider updating their W-4 if they experience a major life change or want to adjust their withholding. ### New Employees Hired in 2020 or Later Any employee who started a new job on or after January 1, 2020, is required to use the redesigned Form W-4. There’s no option to use the old version. This ensures that all new members of the workforce are starting with the most accurate withholding system available. As an employer, it’s crucial to provide only the current version of the W-4 to new hires during their onboarding process. Using an outdated form could lead to incorrect tax withholding and potential issues for both the employee and your business down the line. ### Existing Employees Making Withholding Changes If you have employees who were hired before 2020, they are not required to fill out a new W-4. Their employers can continue to use the information from their previously submitted form to calculate withholding. However, if an existing employee wants to make any changes to their withholding—for example, after getting married, having a child, or starting a side hustle—they must use the new form. It’s a good practice to encourage all employees to review their withholding annually to ensure it still aligns with their financial situation, even if they aren’t required to make a change. ## A Step-by-Step Guide to Filling Out the W-4 The new W-4 form is broken down into five steps, but not everyone needs to fill out every section. Only Step 1 (personal information) and Step 5 (signature) are mandatory for all employees. Steps 2, 3, and 4 are optional but are key to fine-tuning withholding for your specific circumstances, especially if you have multiple jobs, a working spouse, or dependents. Walking through each step can help demystify the form and ensure you or your employees are filling it out correctly for the most accurate outcome. ### Step 1: Enter Personal Information (Required) This first step is straightforward and required for everyone. You’ll enter your name, address, Social Security number, and tax filing status. The filing statuses are Single or Married filing separately; Married filing jointly or Qualifying widow(er); and Head of household. It’s important to choose the correct filing status, as this is the foundation for your entire withholding calculation. If you’re unsure which status to use, the IRS offers an Interactive Tax Assistant to help you decide. This step sets the baseline standard deduction and tax brackets for your withholding. ### Step 2: Multiple Jobs or Spouse Works (Optional) Step 2 is for employees who have more than one job or are married filing jointly and their spouse also works. If this doesn’t apply, you can skip this section. This step is crucial because a single paycheck doesn’t account for other income, which can push you into a higher tax bracket and result in under-withholding if not addressed. The form provides three different options to ensure your withholding is calculated correctly across all sources of income, giving you flexibility in how you approach this calculation.
Option 1: Use the IRS Tax Withholding Estimator
The most accurate and recommended method is to use the IRS’s Tax Withholding Estimator tool. This online calculator does all the heavy lifting for you. You’ll need your recent pay stubs and tax returns to input your information. The estimator will then tell you exactly how to fill out the W-4 for each job, including any extra withholding needed in Step 4(c). It’s the best way to get a precise calculation, especially for complex financial situations.
Option 2: Use the Multiple Jobs Worksheet
If you prefer a manual approach, you can use the Multiple Jobs Worksheet provided on page three of the Form W-4. This worksheet guides you through calculating the total extra tax that needs to be withheld. You’ll only complete this worksheet for one of your jobs—ideally, the highest-paying one. Once you have the final number, you’ll enter it in Step 4(c) of that job’s W-4 form, leaving Steps 2, 3, and 4 blank on the W-4s for your other jobs.
Option 3: Check the Box for Both Jobs
The simplest but least precise option is to check the box in Step 2(c). If you and your spouse each have only one job and earn similar incomes, this method can work well. You would simply check the box on the W-4 forms for both jobs. This tells the payroll system that your standard deduction and tax brackets are split evenly between the two paychecks. However, if there’s a significant difference in pay, this option can lead to over-withholding. ### Step 3: Claim Dependents (Optional) If your total income is under $200,000 (or $400,000 if married filing jointly), you can use Step 3 to account for tax credits for your children and other dependents. Claiming dependents on your W-4 will reduce the amount of tax withheld from your paycheck, giving you more take-home pay throughout the year. This step directly translates the value of tax credits, like the Child Tax Credit, into your regular withholding calculation, making it a powerful tool for families to manage their cash flow.
Calculating Credits for Children and Other Dependents
In this section, you’ll multiply the number of qualifying children under age 17 by $2,000 and the number of other dependents by $500. You then add these two amounts together and enter the total on the line for Step 3. For example, if you have two children under 17 and one older dependent (like an elderly parent you care for), you would calculate (2 x $2,000) + (1 x $500) = $4,500. This $4,500 represents the total annual tax credit you expect to claim.
Income Thresholds for Claiming Dependents
It’s important to remember that these tax credits are subject to income limitations. The credits begin to phase out for individuals with an income of more than $200,000 or for those married filing jointly with an income of more than $400,000. If your income exceeds these thresholds, you may not be eligible for the full credit amount. If you’re in this situation, you should refer to the IRS Publication 501 for detailed rules on claiming dependents and calculating your partial credit. ### Step 4: Other Adjustments (Optional) Step 4 is a catch-all section that allows you to fine-tune your withholding even further. It’s divided into three parts: (a) other income, (b) deductions, and (c) extra withholding. This is where you can account for things like income from freelancing or investments that don’t have taxes withheld automatically. You can also include deductions you plan to take, such as for student loan interest or IRA contributions. Finally, you can request a specific additional dollar amount to be withheld from each paycheck if you expect to owe more tax. ### Step 5: Sign and Date the Form (Required) The final step is the easiest but absolutely essential. You must sign and date the form to certify that all the information you’ve provided is true and correct to the best of your knowledge. An unsigned W-4 is not valid, and your employer cannot accept it. Once you’ve signed it, you submit the form to your employer or HR department, and they will use it to update your payroll withholding. This completes the process, and your paycheck should reflect the changes in the next pay cycle or two. ### What Happens If You Only Complete the Required Steps? If an employee only fills out the mandatory sections—Step 1 (personal information and filing status) and Step 5 (signature)—their withholding will be calculated based on their filing status using the standard deduction. This is the simplest way to complete the form, but it’s also the least customized. This approach assumes the employee has no other jobs, no working spouse, no dependents, and no other income or deductions to consider. For a single person with one job, this might be perfectly fine. However, for most others, it could lead to inaccurate withholding. ## Best Practices for Managing Your W-4 Think of your W-4 as a living document, not something you fill out once and forget. Your financial situation changes over time, and your W-4 should change with it. Regularly reviewing and updating your form is the best way to keep your tax withholding aligned with your life and financial goals. A quick “paycheck checkup” at least once a year can save you from a major headache when tax season rolls around. It’s a simple habit that gives you more control over your money and helps you plan your finances more effectively. ### When to Review and Update Your W-4 While an annual review is a good rule of thumb, certain events should trigger an immediate W-4 checkup. Life is dynamic, and major milestones often have significant tax implications. Forgetting to update your withholding after a big change is one of the most common reasons people end up with a surprise tax bill. Staying proactive and submitting a new W-4 shortly after these events occur ensures your paycheck accurately reflects your new financial reality, keeping you on track with your tax obligations throughout the year.
After Major Life Events
It’s time to revisit your W-4 after any significant life change. This includes getting married or divorced, having or adopting a baby, or when a dependent is no longer a dependent. Buying a home can also impact your taxes, as can starting a side business or having your spouse start or stop working. Each of these events can alter your eligibility for certain tax credits and deductions, so updating your W-4 is essential to ensure your withholding remains accurate and you’re not caught off guard.
If You Had a Large Tax Bill or Refund
Your previous year’s tax return is a great report card for your W-4 settings. If you ended up with a huge tax bill, it’s a clear sign that you were under-withholding and need to have more tax taken out of your paychecks. On the flip side, while a large refund might feel like a bonus, it means you were over-withholding and letting the government hold onto too much of your money all year. In either case, you should adjust your W-4 to get closer to the break-even point. ### How to Adjust Your Tax Withholding Making adjustments to your W-4 is simple once you know which levers to pull. The form is designed to let you easily increase or decrease the amount of tax withheld from each paycheck. Whether you want to owe less at tax time or increase your take-home pay, a few small changes in Steps 3 and 4 can make a big difference. The key is to understand how each entry affects your withholding so you can make intentional changes that align with your financial goals.
To Have More Tax Taken Out
If you consistently owe money at tax time or are starting a side job with no withholding, you’ll want to increase your withholding. The most direct way to do this is by entering a specific dollar amount in Step 4(c) for “Extra withholding.” You can also achieve this by claiming fewer dependents in Step 3 than you are entitled to or by not claiming any deductions in Step 4(b). This will result in more tax being taken from each paycheck, reducing the likelihood of a bill in April.
To Have Less Tax Taken Out
If you consistently get a large refund and would prefer to have more money in your pocket throughout the year, you should decrease your withholding. To do this, make sure you are claiming all eligible dependents in Step 3. You can also account for any deductions you expect to take, such as for student loan interest or IRA contributions, in Step 4(b). These adjustments will lower the amount of tax withheld, increasing your net pay with each check. ### Check Your Paycheck After Submitting a New Form After you submit an updated W-4, don’t just assume everything is correct. It’s a smart move to carefully review your next one or two pay stubs to confirm the changes have been processed accurately. Check the amount of federal income tax withheld and compare it to your previous stubs. If the amount doesn’t seem right or hasn’t changed as you expected, follow up with your HR or payroll department immediately to ensure there wasn’t a data entry error. This simple check can prevent withholding issues from continuing all year. ## Common W-4 Questions and Related Forms The W-4 can bring up a lot of questions, especially with the recent changes. Understanding some of the common scenarios and related tax forms can help both employers and employees feel more confident. From claiming exemption from withholding to knowing what happens if a W-4 isn’t submitted at all, having clear answers is key. It’s also helpful to distinguish the W-4 from other common tax forms, like the W-2, and understand how state-level withholding works, especially for businesses with remote employees. ### How to Claim “Exempt” from Withholding Some employees may be exempt from federal income tax withholding. To claim exempt status, an employee must meet two specific criteria: they must have had no tax liability in the previous year, and they must expect to have no tax liability in the current year. If both conditions are met, the employee can write “Exempt” in the space below Step 4(c) on the W-4 form. They still need to complete Steps 1 and 5. This exemption is only valid for one calendar year and must be renewed annually by submitting a new W-4. ### What Happens If an Employee Fails to Submit a W-4? If a new employee doesn’t submit a Form W-4, the IRS requires the employer to treat them as “Single” with no other adjustments. This means the employer will withhold taxes at the highest rate for a single individual. This default status often results in over-withholding, but it protects both the employee and employer from potential underpayment penalties. It’s always in the employee’s best interest to complete a W-4 as soon as possible to ensure their withholding is tailored to their actual situation. ### W-4 vs. W-2: What’s the Difference? It’s easy to mix up these two common tax forms, but they serve very different purposes. The Form W-4, Employee’s Withholding Certificate, is a form you fill out and give to your employer *before* you get paid. It tells your employer how much tax to withhold from your paycheck. In contrast, the Form W-2, Wage and Tax Statement, is a form your employer gives to you at the *end* of the year. It summarizes how much you earned and how much tax was already withheld, and you use it to file your annual tax return. ### A Note on State Withholding Forms While the W-4 handles federal income tax, many states have their own withholding forms for state income tax. However, for businesses and employees in Washington, this is one less thing to worry about. Washington is one of the few states that does not have a state income tax, so there is no state-level withholding form to complete. If your business employs remote workers in other states, you’ll need to ensure you are using the correct withholding forms for their specific location, as each state has its own rules and requirements. ## How Employers Can Support Their Team As an employer, you can’t give tax advice, but you can provide resources and support to help your employees make informed decisions about their W-4s. This can include sharing links to the IRS website, providing clear instructions during onboarding, and reminding employees to review their withholding annually or after life events. Creating an environment where employees feel comfortable asking questions (and know who to ask) can make a big difference. Supporting your team with these administrative tasks shows that you care about their overall financial well-being. ### Streamlining Benefits to Free Up HR Resources Managing payroll and tax forms is just one piece of the HR puzzle. When your HR team is also bogged down with the complexities of health insurance renewals, claims issues, and employee benefit questions, it’s hard for them to give payroll the attention it deserves. By partnering with a dedicated benefits expert, you can offload the entire benefits administration process. This frees up your HR department’s valuable time and energy, allowing them to focus on core responsibilities like ensuring W-4s are processed correctly and supporting employees with their most pressing financial questions.
At Washington Health Insurance Agency, we help businesses manage their health benefits from top to bottom. This allows HR departments to focus on supporting their employees with important payroll and tax questions, ensuring the team feels confident and cared for.
When you work with us, we become an extension of your team, handling everything from enrollments and claims advocacy to compliance and payroll integration. This comprehensive support means your HR staff can step away from time-consuming benefits tasks and dedicate their focus to crucial internal functions. They’ll have more capacity to help employees understand their paychecks, navigate tax forms, and manage other aspects of their financial wellness, which ultimately leads to a more supported and satisfied workforce. It’s about creating a system where everyone can focus on what they do best.
Frequently Asked Questions
Do all of my employees hired before 2020 need to fill out the new W-4 form? No, they don’t have to switch if they’re happy with their current withholding. You can continue to use the information from their older W-4. However, the moment they want to make a change—like adjusting for a marriage or a new child—they must use the current version of the form. It’s always a good idea to encourage your team to review their withholding annually, even if it’s not required.
What is the most common mistake people make on the new W-4? The most frequent oversight happens in Step 2, which is for people with multiple jobs or a working spouse. If an employee and their spouse both work, and they both just select “Married filing jointly” in Step 1 without completing Step 2, they will likely have too little tax withheld. This is because each job will give them the full standard deduction and tax bracket room, not realizing another income exists. This is the quickest path to an unexpected tax bill.
An employee is frustrated with getting a huge tax refund. How can they adjust their W-4 to get more money in each paycheck? A large refund is a sign that they overpaid in taxes throughout the year. To increase their take-home pay, they should make sure they are accurately accounting for any tax credits or deductions on their W-4. The best places to do this are in Step 3, by claiming all eligible dependents, and in Step 4(b), by entering any expected deductions. These adjustments will lower the amount of tax withheld, putting more money back into their pocket with each pay period.
What happens if a new employee doesn’t submit a W-4 form? If you don’t receive a W-4 from a new hire, the IRS requires you to withhold their taxes as if they are a single filer with no other adjustments. This is the highest withholding rate, so it usually means more tax will be taken from their paycheck than necessary. It’s always in the employee’s best interest to complete the form promptly to ensure their withholding accurately reflects their personal tax situation.
As an HR administrator, can I help an employee fill out their form? You can certainly help by providing resources and explaining what each section of the form asks for. For example, you can direct them to the IRS website or its online estimator tool. However, you must avoid giving personal tax advice, such as telling them which filing status to choose or how many dependents to claim. It’s important to draw a clear line and encourage them to speak with a qualified tax professional for personalized guidance.
Key Takeaways
- The W-4 no longer uses allowances: The form was redesigned to align with tax law changes, using a five-step process for a more accurate calculation. All new hires and any current employee making changes must use this version.
- Fine-tune paychecks with optional adjustments: Encourage employees to use Steps 2, 3, and 4 to account for multiple jobs, dependents, and other income. This is the best way to align their withholding with their actual tax liability and avoid surprises.
- A W-4 isn’t a “set it and forget it” form: Advise employees to review their W-4 annually and after significant life changes like marriage or a new child. This proactive step helps keep their withholding accurate and prevents future tax issues.