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Form W-4: Definitions, Tips and Important Updates

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    Employees complete and submit the Form W-4 so their employers ensure tax withholdings align with their workforce’s ultimate tax liability. But between annual updates and changing tax status, it’s key to understand how this common IRS tax document evolves. Read how the Form W-4 works, tips for helping employees complete it and why the right single HR software simplifies W-4 management.

    Changing laws and regulations spell changes for tax documents, too. Even if you’ve memorized each section of the Form W-4, for example, annual updates make compliance an ever-evolving challenge.

    Leaders — especially those in HR — should understand tax updates and how they affect their workforce.

    Don’t worry if you’re unsure where to brush up on your knowledge. We’ll help you start by highlighting what you need to know about the 2023 Form W-4.

    What is Form W-4?

    The Form W-4 is an IRS document that employees complete and submit to their employers to ensure tax withholdings align with the worker’s ultimate tax liability.

    What does the Form W-4 tell an employer?

    The Form W-4 essentially gives instructions from the employee about their situation to their employer. That way, the employer properly can calculate withholding from each employee’s paycheck. Although the W-4 has evolved over the years, its purpose remains consistent.

    In summer 2019, the IRS proposed a revision to the W-4 that went into effect on Jan. 1, 2020. The 2020 W-4 reflected the suspension of personal allowances under the Tax Cuts and Jobs Act, requiring a significant amount of input from employees.

    This was the form’s first major update since the Tax Cuts and Jobs Act was signed into law in 2017. The form was reformatted to increase transparency, simplicity and accuracy of payroll withholdings.

    How has Form W-4 changed in 2023?

    While much of the 2023 W-4 remains the same, you should be aware of some notable adjustments. Specifically, the standard deductions for each filing status increased slightly:

    Married filing jointly or qualified widower $25,900 $27,700
    Head of household $19,400 $20,800
    Single or married filing separately $12,950 $13,850

    While this doesn’t impact the form itself, 2023 marks the first change to the IRS’ Tax Withholding Estimator app. The latest form offers thorough instructions and examples for calculating a withholding — specifically related to large incomes with potentially larger annual tax obligations.

    Under “General Instructions,” for example, reference to the app has been removed from the self-employment subsection. Instead, it includes a scenario that assumes a 14.15% rate. The estimator also was removed from Step 2(b) and instructs employees to update their W-4s for supplemental employers if those forms haven’t been updated since 2019.

    How do employees fill out the 2023 Form W-4?

    Your employees may have questions about their W-4. Consider these five steps:

    1. Verify personal and demographic information

    Employees will file as “Single or married filing separately,” “Married filing jointly or qualifying widow(er)” or “Head of household.” This step also requests an employee’s:

    • first name
    • middle initial
    • last name
    • Social Security number
    • complete address

    If an employee has only one job, has no dependents and goes with standard deductions, they can skip straight to the final step after completing this section.

    2. Account for multiple jobs

    The employee will follow the instructions for only one of the following three choices:

    • Complete an estimator on the IRS website and enter the results in Steps 2, 3 and 4 on the W-4.
    • Complete the Multiple Jobs Worksheet on page 3 of the W-4 and enter the result in Step 4(c) of the W-4.
    • If the employee has exactly two jobs — or the employee and their spouse have a total of exactly two jobs between them — the employee would check the box in this step. In doing so, they can expect a larger amount withheld from their paycheck; the employee’s filing status and income will determine the actual amount withheld.

    3. Claim credits against withholding by claiming the number of dependent children and other dependents

    The more dependents claimed in this step, the lower your employee’s withholding will be calculated on each paycheck.

    4. Make other adjustments

    Employees may enter information about any other income, deductions or additional withholdings needed based on the worksheets in the W-4 instructions. Using the Step 4(b) Deductions Worksheet, the employee can fine-tune their withholding using their estimated itemized deductions rather than the standard deduction.

    5. Sign and date the form

    Once employees verify their information, they can complete the document by signing their name and dating it.

    Consider using an effective tax management tool to streamline this process.

    Do employees need to fill out a new Form W-4 every year?

    While existing employees don’t need to file a new W-4 every year, new hires and current employees who need to make changes must use the updated 2023 W-4.

    Employers may ask — but not require — employees to replace existing pre-2020 forms. They may not treat employees with older forms as failures to submit. (Exception: Those who claim the “Exempt” status are required to re-submit by Feb. 15 each year.)

    How often should employers remind employees to complete a new Form W-4?

    The IRS recommends that employees should complete a new Form W-4 annually. To help, it’s generally best to remind your people to complete a new form each December if they’ve encountered any changes to the personal information that impacts their tax status.

    Tax-exempt employees

    Employers should remind tax-exempt employees to complete a new Form W-4 every year before February. This will help these workers retain their tax-exempt status.

    How many times can employees adjust their Form W-4 in a year?

    Employees may update their Form W-4 as often as they like. However, most will generally opt to do so when they experience a notable change to their tax status, which could be spurred by:

    • marriage
    • a new dependent
    • changed or supplement income (i.e., a second job)

    Easy-to-use self-service software makes it easy for employees to manually update their W-4 — even outside of work.

    What’s the difference between a Form W-4 and Form W-4P?

    While the Form W-4 certifies the withholdings for federal taxes on your income, the Form W-4P certifies holdings from:

    • periodic pensions
    • annuity (including commercial annuities)
    • profit-sharing and stock bonus plans
    • individual retirement arrangement payments

    IRS Form W-4 resources

    Use these helpful resources to guide your Form W-4 discussions:

    How Paycom eases Form W-4 navigation

    Although common, the Form W-4 still presents compliance risks when mishandled. Paycom’s easy-to-use tax tools simplify payroll tax management by creating a seamless and transparent experience for employers and their people.

    Our single software automatically alerts HR and payroll administrators when employees complete new Form W-4s. Plus, deductions automatically flow into payroll without the need to re-key data.

    Beti®, our employee-guided payroll experience, leads employees to verify the accuracy of their tax deductions before submission. For greater compliance peace of mind, Paycom also automates:

    • payroll tax reports
    • IRS payments
    • record-keeping

    Explore Paycom’s single software to see how it helps you manage payroll taxes, compliance and more.

    DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.