How to Fill out a W-4:
Tax season has come to an end. Did your taxes come out the way you wanted them to? If not it could be the way you filled out your W-4. Continue reading to figure out if you need to revisit your W-4 so that you are ready for the 2023 tax season.
Why should anyone care about filling out a W-4?
Taxpayers who fill out the 2022 W-4 are less likely to wind up with a large tax bill or a giant refund when they file tax returns in 2023 – money that could have been invested or spent on essential expenses throughout the year.
Updating your withholding amount is always optional, although the IRS recommends that employees revisit their W-4 forms every year.
An employer's guide to the 2022 W-4:
If your employees haven’t gotten married or had any children they probably haven’t filled out a W-4 in a long time. This is why we recommend that as an employer, you remind your team of the importance of reviewing their withholdings every year.
Changes to the W-4:
Additionally, major changes to the W-4 came in 2017 with the passage of the Tax Cuts & Jobs Act. The first change is the name, historically, Form W-4’s title was “Employee’s Withholding Allowance Certificate”. But starting in 2020 the form stopped calculating ‘allowances’ so the title is now “Employee’s Withholding Certificate”.
The next big change that happened to the W-4 was that the Personal Allowance Worksheet from page three of the old form disappeared and remains gone. Why? Because the Tax Cuts & Jobs Act eliminated personal exemptions. These exemptions allowed for deductions against a taxpayer’s personal income, which reduced their taxable income and federal income tax. The exemptions were tied to allowances, but because the exemptions are now gone, the need to figure out the number of allowances is gone too.
The 5 steps in the 2022 W-4:
1.) Enter personal information
This is a required step, and if an employee does not fill out box c you are required to calculate their withholdings as ‘single’ so you can withhold their taxes at the higher rate.
Basic information is needed here: 1) Name; 2) Social Security number; 3) Address; 4) City/town, state, and ZIP.
2.) Multiple jobs or Spouse works
For step 2, employees only need to complete option (a), (b), or (c). Most commonly, this step is for anyone who has more than one job or is married filing jointly and whose spouse works.
Options (a) and (b) will take employees away from the form itself, but employees can complete option (c) right on the form. The IRS has stated that option (a) will give employees the most accuracy and privacy of the three. Option (b) also provides accuracy but requires manual work, and (c) is the least accurate since it assumes the jobs pay the same, but it’s the easiest to complete.
Checking box 2(c) tells your employer that you have multiple jobs. If you don’t want to disclose that fact, don’t check the box.
The form notes that individuals with multiple jobs should complete Form W-4 with the information from their highest paying job, which would result in the most accurate withholding.
(If you work more than one job, steps 3 through 4b should only be completed on one W-4 form.)
3.) Claim Dependents
Single taxpayers with a total income of $200,000 or less ($400,000 if married and filing jointly) are eligible for the child tax credit. The number of qualifying children under age 17 multiplied by $2,000 will go into the first box. The number of other dependents multiplied by $500 will go in the second box, and the sum of those two numbers will go on line 3.
Employees should pay attention to the definitions in IRS Publication 972 – Child Tax Credit if they’re looking to claim the credit.
4.) Other adjustments
this is an optional section of the W-4 which includes other income (not from jobs), deductions, and extra withholding. (a) Other income is an additional income that might not be subject to withholding, like retirement income or dividends.
(b) Deductions is for deductions other than the standard deduction. This includes all itemized deductions like mortgage interest and charitable contributions. It’s important to remember that, in general, the standard deduction reduces a taxpayer’s adjusted gross income to arrive at taxable income. So the greater the standard deduction or itemized deduction will help reduce the amount of tax due.
(c) Extra withholding is any extra withholding that the employee would like to withhold each pay period.
5.) Signature
If your employee doesn’t sign the form it is invalid.
Worksheets on Form W-4:
The 2022 W-4 only has two worksheets, the multiple jobs worksheet, and the deductions worksheet.
Multiple Jobs Worksheet:
If you choose option b in Step 2, you will need to complete the Multiple Jobs worksheet.
Line 1
is for anyone who has two jobs or is filing jointly with a spouse who also works. Using the tables on page four, find the wages or salary for the ‘Higher Paying Job’ in the column on the left (see below) and cross-reference it with the number of wages or salaries from the ‘Lower Paying Job’ in the columns moving left to right.
At the intersection of these two amounts is the number you will enter on line 1. Keep in mind that there are separate tables for single and married filing separately, and head of household taxpayers, so make sure you’re using the right table.
Line 2
Is for someone who has three total jobs on their own or with a spouse.
Line 2a
For the two highest-paying jobs, you will use the correlating table to find the number that goes on this line.
Line 2b
The wages and salaries for the two highest-paying jobs need to be added together and found in the column on the left. You can find the wages and salaries for the third job in the row across the top of the table. The value at the intersection of those two figures will go on line 2b. The sum of lines 2a and 2b goes on line 2c.
Line 3
Is the number of pay periods per year for the highest paying job, this and Line 4 apply to everyone who chooses to fill out the Multiple Jobs worksheet.
Line 4
Simply divides the amount on either line 1 or 2c by the number of pay periods on line 3.
Deductions worksheet:
The deductions worksheet is for anyone who plans to itemize deductions. Since the implementation of the TCJA increased the standard deduction, far fewer people have been itemizing their deductions in recent years.
For 2022, if you believe your itemized deductions will exceed $12,950 (if you’re single or married filing separate), $25,900 (if you’re married filing jointly), or $19,400 (if you’re the head of household), you should consider filling out the deductions worksheet.
Anyone filling out this worksheet should have their prior-year tax return handy to help get a good idea of what those tax deductions might be.
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(Disclaimer: this is not to be taken as tax advice. Since tax rules can vary by location, and industry, and can change over time, consult a CPA or tax advisor for specific guidance.)
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