IRS Issues New Form W-4 for 2021 Employee Tax Withholdings
In December 2020, the IRS released the final version of the 2021 Form W-4. The important tax form includes very few changes from the 2020 version, which was overhauled to feature more accurate withholding information in a simpler and more private format. Here's what you need to know.
What’s Changed on the New W-4?
In essence, not much. The new Form W-4 remains relatively unchanged after a major overhaul in December 2019. The only notable updates include a few adjustments to taxable wage & salary tables on page 4.
For employers, this means that current employees won't face a learning curve when updating withholdings. However, employees who join your company in the new year may not be familiar with the new form.
Tutorial: Recapping the Latest Major Updates to Form W-4
The 2020 form included a few major changes that may need to be reviewed by both HR and employees. The following video recaps these changes:
In-Depth: What to Know About the 2020 Changes to Form W-4
As a refresher, in the place of withholding allowances, Form W-4 now includes a five-step process for declaring additional income (if necessary). Now, employees can adjust their withholding with different levels of accuracy, privacy, and ease of use. Many have said the new form is easier for employees and MORE complex for employers.
This five-step process includes:
- Step One: Employees will enter their personal information such as name, social, address, and filing status
- Step Two: Employees will list multiple jobs or if the employee’s spouse works
- Step Three: Employees will claim dependents (if applicable)
- Step Four: Employees will include other adjustments, such as investment and retirement income, deductions other than the standard deduction, and any extra withholding per pay period
- Step Five: Employees will include their signature and the date
As a reminder, the IRS states that step one and step five are the only steps required for all employees. Steps two, three or four are not required but can help ensure federal income tax withholding will more accurately match an employee's tax liability.
Requirements for the latest Form W-4 apply to employees based on their hire date. These include:
- Employees hired after Jan. 1, 2020, must use the 2021 Form W-4
- Employees hired before Jan. 1, 2020, can submit a new form but are not required to unless they want to make adjustments to their withholdings
If you have additional questions or if you’re looking for additional information about the 2020 Form W-4, visit the IRS website.
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