Are you planning to fill out an IRS W4 form?Well, that means you have changed jobs or have experienced notable changes to your financial situation. Regardless of the basis for filling it out, it is good to appreciate that the W4 form has been redesigned and refreshed to make it easier to use. Gone are the days of not being sure whether you should claim “0” or “1” are gone! The W4 form no longer asks about allowances.
This post will explore what the 2020 W4 form is and how to fill it correctly.
Just like the 2019 W4 form, the new W4 form should be completed by all employees (new and existing) who wish to update their withholding. The W4 ensures your employer can withhold the right amount of federal income tax from your earnings.
If you are contented with your withholdings and you already forwarded a W4 form to your employer during a previous tax year, there will be no need to update the form. It’s advisable only to do so when your tax position or situation had changed.
If not enough is withheld from your pay, you are likely to owe the government money come the next tax season. While getting a hefty paycheck each month sounds good, it could come to haunt you in the form of an unexpected tax bill, or even a penalty come April. Equally, pay in excess, and you will end up getting a refund.
What notable with the new form, like we have mentioned earlier, is that the redesign gets rid of allowances. This revision aligns with the changes from the Tax Cuts and Job Act of 2017 (TCJA). It makes the form effortless to complete and easier for employees to correctly let the employers know how much tax to withhold.
You can get a W4 PDF copy on the IRS website. It comprises of four major pages, namely:
Like we stated above, when you start a new job, you will be asked to fill out a W-4 form. Probably, you will also want to update your withholdings and allowances when one of the following happens:
While both the W4 and W2 are concerned with payroll, their roles are completely different.
While a W4 tax form tells the employer how much money should be set aside for local, state, and federal taxes, the W2 form tells employees how much money they earned, taxes to be paid, and where other deductions went ( health insurance, union dues, Medicaid, etc.). In short, the W2 gives a complete rundown of everything an employee was paid along with the relevant taxes.
The details found on the W4 form ultimately affected the info an employee got on the W2 form, which is why learning about W4 allowances was crucial. Remember, the new W4 has stopped asking for allowances.
Once a new employee forwards the W4 form to their employer, they can commence work and start getting paid. The employer is expected to offer a paycheck every end month (minus any tax and retirement deductions). At the end of the year, the employer again furnishes the employee with a W2 tax form to detail their annual financial plan.
Here is the summary of the differences between the two forms:
If you have any other person (or companies) that you have contracted to do some work for you and they are not W2 employees, ensure they complete a W9 form. We are referring to those that hire freelancers and independent contractors.
The W9 is meant to capture the information of the independent contractor doing work for you. Things like full name and taxpayer identification number are captured in this form. From here, the contracting company or person can record their wages.
The W9 thus differs from the W4 form in the sense that it does not contain any kind of allowance or withholding information. In essence, the primary purpose of the W9 is to gather the payee’s information so that you, as an employer, can correctly complete a form 1099-MISC.
Take advantage the IRS’S withholding estimator to fill the W4 easily and quickly. Just follow the series of steps provided in the estimator, and afterward, download a pre-filled form.
However, if you would rather DIY, there are some things you must be aware of. For starters, there is no longer a place to indicate how many dependent and personal exemptions an employee aims to claim, given that personal exemptions were abolished from the tax code. The 2020 W4 is divided into five steps to help the users understand what their tax withholding should be.
Provide personal information such as name, Social Security Number (SSN), address, and filing status. Filing status here refers to if one is a head of a household, single, or married.Also, the name provided should match the one printed on the SSN card.
This second step is optional and should only be completed if the employee has additional jobs, or their spouse is also employed. The 2020 W4 gives employees three approaches to entering this data.
Here is where you enter details about your dependents. To make a claim, regarding your dependents, you should be earning less than $200, 000 (or 400, 000 when filing jointly). Every eligible child is usually recorded at $2, 000 and non-child dependents at $500. To be a dependent, the child should be less than 17 years old as of Dec 31, 2020. Additionally, dependents should have lived with the employee for half the year.
Here, you should declare income not subject to withholding, for instance, interest and dividend income. Also, this section can be used to request extra withholdings to help take care of taxes from other forms of income, such as self-employment. If you are claiming exemption from withholding, you should indicate “exempt” in this section.
Sign and date – Employees should put their signatures here.
The IRS has authorized the use of electronic signatures on W4. Employers, thus, who are capable, can establish a system for its employees to file W4 electronically. For that to happen successfully, the employer’s electronic system should meet the following requirements:
The electronic system should be able to authenticate that the info received is coming from the employee. In other words, the system should not permit anyone but the employer in question to fill out the W4. The system should also be able to keep track of every time an employee makes changes to the W4.
Employers must be ready to provide a physical copy for any employees who decline to use an electronic form. The electronic W4 form should always contain the same information as the physical one and must be signed and completed by the employee under penalties of perjury. Note that the perjury statement should have the exact language that appears on the physical or paper W4.
Lastly, employees must not be able to make an electronic signature until the rest of the W4 form is completed – the signature should be the last entry.
Employees are usually required to pay both federal and state income tax. Thus, two W4 tax forms may be required to calculate the correct withholdings. In some instances, states use the federal W4 as a guide for their own calculations. As such, the recent changes that were made to the older form may impact the state documents.
Case in point, states that use the federal W4 to compute state taxes may have to update their processes to accommodate the recent changes in the law. Idaho, Utah, Colorado, Nebraska, North Dakota, South Carolina, New Mexico, Delaware, Wisconsin, and Oregon have announced that they have rolled out new state-specific forms to reflect the revised tax laws and federal design.
It is good to note that Washington, Florida, Wyoming, Nevada, Alaska, Texas, and South Dakota d not levy a state income tax. For that reason, the updates made to the federal W4 will not affect state-specific W-4 requirements.
A W-4 is deemed invalid if it includes illegal changes or false data. Employers and employees can avoid the following blunders by going through all available instructions and keying in the most up-to-date information.
Completing a W4 form on behalf of somebody – Some employers may be tempted to complete a W4 on behalf of their employees.
Competing another applicant’s W4 form – Some employers may be tempted to complete a W4 on behalf of their employees. This is illegal.
Completing unnecessary sections of the W4 – Only the personal information part (section 1) and employee signature part (section 5) should be completed. Notably, only employees who have claims, relating to dependents, secondary jobs, or additional adjustments should complete sections two to four.
Accepting an invalid W4 – Employers should make sure that the W4 form they accept has not been unlawfully modified. If someone has edited the structure or language of the form, an employer has every right to reject it.
Giving unsolicited advice to employees – As an employer, you are not supposed to tell or advise employees on which specific information to enter on the form. Rather, you can direct employees to follow the instructions provided on the form, use IRS troubleshooting tools, and other available materials.
Not reminding employees when a new W4 form is needed – Employers should always remind employees to update their W4 forms before Dec 1 of every year.
Untrue W4 calculations may result in tax discrepancies. When employees under-declare federal tax withholdings, they may face unexpected tax bills when the tax season approaches. These discrepancies are not only synonymous with financial blows but can also come with severe penalties. Below are two actions that can result in fines or prison time.
When exempted, it means that the employer hasn’t withheld federal individual income tax from your salary (Medicare taxes and Social Security taxes, though, may be deducted from your paycheck).
You can also be exempted, if the following scenarios are true:
Fidlling is okay. You are allowed to provide your employer with a new W4 at your convenience. Meaning, you can complete a W4 tax form, submit it to the employer or the relevant department and afterwards wait for your revised paycheck to confirm how much was withheld. Never shy away from making further adjustments when it appears like the withholding will end up being too much or look like it will be insufficient to take care of your entire tax bill.
How much an employer withholds mostly depends on the amount of money an employee earns and what they put on the W4. Here are some factors that can be considered:
If you need additional help on this, the worksheets included in the W4 form that can come in handy when estimating tax deductions. Also, the W-4 calculator available on the IRS website can be helpful.
When one of the following events takes place, you might want to amend your form W4 with an hope that your withholdings can mirror your tax life:
The new W4 form redesign seeks to address the new tax laws and shorten the process for all parties (especially for employees). Only time will tell if these revisions will acquire the desired results. Meanwhile, understanding when and how to fill out W4 form can help the parties involved calculate accurate withholding and steer clear of penalties. For eSign Documents & complete your documents signing process quickly then start your 14 days free trial now with eSign Genie!
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