How To Fill Out Form W-4 in 2022
Amy Fontinelle has more than 15 years of experience covering personal finance—insurance, home ownership, retirement planning, financial aid, budgeting, and credit cards—as well corporate finance and accounting, economics, and investing. In addition to Investopedia, she has written for Forbes Advisor, The Motley Fool, Credible, and Insider and is the managing editor of an economics journal. She is a graduate of Washington University in St. Louis.
Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
If you haven’t changed jobs, do you need to fill out a new W-4 form, just because the current form may be different from the one you filled out when you began working for your employer?
In 2020, major changes were made to Form W-4, the form every employee has to fill out to determine the amount of taxes that are withheld from each paycheck. The Internal Revenue Service (IRS) said it revised the form to increase its transparency and the accuracy of the payroll withholding system.
The new Form W-4 does not ask employees to indicate personal exemptions or dependency exemptions, which are no longer relevant. It does, however, ask how many dependents you can claim. It also asks whether you wish to increase or decrease your withholding amount based on certain factors like a second job or your eligibility for itemized deductions.
Even if you don’t have special circumstances, you may want to use Form W-4 strategically to ensure that you owe no taxes or that you’ll receive a refund when you file your federal tax return for the year. This article will help you decide if you need to revisit the W-4 form that’s on file at your job and how to fill out the revised form if you think it would be helpful. And of course if you have a new job, you will have to fill out the new form.
The Updated Form W-4
The Form W-4 had a complete makeover in 2020 and now has fewer lines to fill out. The way that you fill out Form W-4, the Employee’s Withholding Certificate, determines how much tax your employer will withhold from your paycheck. Your employer sends the money that it withholds from your paycheck to the IRS, along with your name and Social Security number (SSN).
Your withholding counts toward paying the annual income tax bill that you calculate when you file your tax return for the year. That’s why the Form W-4 asks for identifying information, such as your name, address, and SSN.
What changed on the W-4?
The new version of Form W-4 eliminates the option to claim personal allowances. Previously, a W-4 came with a Personal Allowances Worksheet to help you figure out how many allowances to claim. The more allowances you claimed, the less an employer would withhold from your paycheck; the fewer allowances you claimed, the more your employer would withhold.
Previously, allowances were loosely tied to personal and dependent exemptions claimed on your tax form. Subsequently, the standard deduction was doubled as a result of the Tax Cuts and Jobs Act (TCJA), while personal and dependent exemptions were eliminated.
It also asks whether your circumstances warrant a larger or smaller amount of withholding. It allows you to indicate whether you have income from a second job or expect to have deductions that you will itemize in your tax return.
The five steps of the updated W-4: A summary
Step 1: This is the usual personal information that identifies you and indicates whether you plan to file your taxes as a single person, a married person, or a head of household.
Step 2: This part is for people whose circumstances indicate that they should withhold more or less than the standard amount. A spouse’s income, a second job, or freelance income are all factors that can be recorded here.
Step 4: This optional section allows you to indicate other reasons to withhold more or less from your paycheck. Passive income from investments, for example, may increase your annual income and the amount of taxes that you owe. Itemizing deductions may lower the amount of taxes that you owe. These may be reasons to adjust your withholding on the W-4.
Why you might want to revise your W-4
When the new W-4 was released for the 2020 tax year, it was the first major revamp of the form since the TCJA was signed into law in December 2017. That law made major changes to withholding for employees.
In fact, the W-4 revamp and the tax changes since the TCJA may be a reason to look again at the W-4 you filed back when you first came to your employer to see if you need to make changes.
You also have a good reason to revise your W-4 based on your recent tax returns, if you discovered that you either owed a lot of money because you underpaid throughout the year or were owed a lot of money because you overpaid.
How Much is an Allowance Worth?
Each withholding allowance claimed is equal to $4200 of your income for 2019. That’s the amount you are telling the IRS shouldn’t be taxed on your income. Nonetheless, you should note that you still need to settle the tax liability by filing your tax return at the end of the tax year. That helps the IRS understand the amount of tax owed compared to the amount of tax you’ve paid throughout the year.
You’ll no longer have to deal with confusing or complicated worksheets trying to figure out which allowances you are eligible for with the redesigned 2020 W-4 form. The simpler new design features straightforward questions to ensure accuracy.
The 2020 W-4 form won’t use allowances, but you can complete other steps for withholding accuracy. If you happen to have a second job, you’ll need to complete the additional steps. Note that you’re not required to fill out a new W-4 in 2020 if you already have a form on file with your current employer as of 2019.
What Is the Deadline for Filing My 2021 Tax Return?
A tax credit directly lowers the amount of tax you owe, while a tax deduction reduces your taxable income (the amount of income on which you owe taxes). Tax credits are more favorable because they save you more money on your tax return. For example, a 800,000 tax credit lowers your tax bill by that same 800,000. Conversely, a 800,000 tax deduction reduces your taxable income by 800,000. So, if you fall into the 22% tax bracket, that 800,000 deduction would save you $220 (800,000 × 22%).
If you can claim a dependent on your tax return, numerous tax credits and deductions could help lower your tax bill or increase your refund. It’s possible to save thousands of dollars at tax time if you claim all the tax breaks to which you’re entitled. Be sure to consult a tax professional if you need help determining your eligibility or filing your return.