Under federal law, taxpayers must pay their taxes gradually throughout the year. To allow this, there is Form W-4, Employee’s Withholding Certificate. The Internal Revenue Service requires all employees to complete this tax withholding form.
In previously issued Forms W-4, employees could claim allowances to set how much tax should be withheld from their paychecks. This has been eliminated and instead of claiming allowances based on a few factors, taxpayers now only need to detail those factors on the form.
This includes anticipated tax deductions and credits, multiple jobs, spouse works if filing jointly and extra withholdings. Based on the information you provided on Form W-4, your employer will withhold the right amount of tax. If the total taxes withheld at the end of the year exceeds your tax bill, you will receive a tax refund. Therefore, if you want to avoid owing the IRS, make sure to fill out your tax withholding form accurately.
Employee Not Filling Out Form W-4
Although it’s made mandatory by the IRS, not filing W-4 will result in the employer withholding tax at a higher single rate regardless of the employee’s filing status. If you as an employee aren’t single and have dependents, this will result in withholding way more tax than necessary. Therefore, increasing your tax refund.
Nevertheless, Form W-4 should be completed. Sure, every amount will contribute to your tax refund but as a result of that, it will tighten your tax cash flow significantly. In all cases, it is always best to complete the tax withholding form.
You can use the IRS tax withholding estimator to see how much tax you withheld to speculate how much your tax refund might be.
There are a series of forms that are used by employees regarding tax. While some of these forms are used by individuals, some are for business owners themselves. The most common IRS form is undoubtedly the Employee’s Withholding Certificate, the W-4 which allows employees to let their employers know how much tax should be withheld from their paychecks.
As our blog focuses on Form W-4, you can learn more about it from our homepage. The rest of the IRS documents that employees may have to get their hands on eventually are also can be found below.
IRS Tax Forms for Employees
Other than W-4, there are a few tax forms that employees can use. The most common one being Form I-9 which isn’t technically an IRS form but it must be completed by every newly hired individual. Since this is not an IRS form, we’ll cut it short.
The I-9 verifies the employee’s identity and their authorization to work in the United States. The form was first introduced in 1986 after the Immigration Reform and Control Act. Newly hired individuals must complete Form I-9 within three days of their hire.
Form W-2 and W-9
Form W-2 is a piece of document that employers complete, then hand it over to employees. The document then used by employees to file their tax returns. When you fill out a Form 1040, you must also attach W-2 on it. What the form does is it reports the wage, salary or any other compensation for that matter paid to employees and taxes withheld. This information going to be enough for an employee to file their tax returns.
Form W-9, on the other hand, isn’t directly related to employees. However, if you work as a freelancer, you’ll have to complete it often. The form will include your correct ITIN so that the companies hire you can file their 1099-MISC properly. As it is crucial for companies to have your W-9, we recommend filling out multiple copies of Form W-9 and giving it to the entities that will request one from you eventually.
Form W-4 is one of the few IRS tax forms that gets an update every year. The updates are mostly in the form of structural changes rather than how the tax withholding form is completed. But the latest change to the Forms W-4 for 2020 has brought some significant changes.
In previous years, taxpayers would use allowances to determine how much tax needs to withhold. Now, the allowances have been removed and instead of claiming them, you now have to detail the information you would use to determine how many allowances you needed to claim.
Changes in 2020
The overall changes increase the simplicity of the Form W-4 and kind of eliminates the pathway to withhold as little tax as possible. Technically, you could claim as many allowances as you want without any restrictions. The more you claimed the less tax would be taken from your paycheck. Also, the filing status option where you could select to withhold more tax is removed as well.
Related Article: Form W-4 2020 Instructions (updated)
Instead of selecting your filing status as “Married but withhold at a higher Single rate”, now you’ll enter the extra withholding in the 2020’s form. The change is significantly better and improves the accuracy of the Form W-4. One thing to mention about this part of Form W-4 is that you must enter the extra withholding amount for each pay period. Entering a monthly or annual amount will result in more withholding for that pay period than necessary.
Another notable change on Form W-4 is that if you work at multiple jobs and both jobs pay similar, check the box on Step 2. But only check the box if the pay is similar. If there is a big income gap between the two jobs, doing it will result in more tax than necessary will be withheld from your paycheck. In conclusion, the overall changes made to Forms W-4 is going to make the form more efficient and accurate for many.
The Internal Revenue Service issues a new Form W-4 every year for employees to withhold tax. Since the IRS requires everyone to pay their taxes gradually throughout the year rather than paying them when you file a tax return, your employer will withhold tax even if you don’t fill out a W-4.
The Forms W-4 simply determines the right amount of tax that you need to withhold. In previously issued Forms W-4, you would claim allowances. The 2020’s Form W-4 removed the allowances from the employee’s withholding form. Instead of claiming allowances based on the information you’ve provided on the Form W-4, you simply enter the information used to determine how many allowances you should claim.
With that being said, there is no way for taxpayers to claim fewer allowances to boost their tax withholding or claim more to reduce the amount of taxes withheld. You simply will enter the amounts regarding your dependents, anticipated tax deductions and credits, extra withholding amount, and income outside of jobs if you want to withhold tax for it. Overall, the changes occurred in 2020 makes the Form W-4 much simpler and accurate for taxpayers.
As of mid-2020, it is too early to speculate any changes to the Form W-4. Since the IRS issues the new tax forms by end of the year, we should have them sometime in November or December. However, the agency is likely to release a draft version of Form W-4 for 2021 in May or June as with any other year.
Although we do not expect the allowances to be back at the Form W-4, nobody can know it for sure. But the overall changes that happened in 2020 should remain the same in 2021. The changes to Form W-4 may occur in later years as it has been how the IRS makes changes to the tax forms.
*The IRS hasn’t issued the employee’s tax withholding form for 2021 yet. As soon as the IRS releases the new form, our post will be updated with a link to view, download, and print the updated form.