If you thought the massive overhaul of the 2020 Form W-4 (its first big update in 30 years) would be it for a while, you were right… kind of. You need to be aware that, while the changes aren’t as massive as the 2020 form, you will see some differences in the supporting tables for last year’s form and this year’s for new employees and employees who need to update their withholding.
What is a W-4 Tax Form?
The W-4 is still an important part of compliance landscape, completed whenever an employee starts a new job or modifies their withholding status. If you haven’t had to use the 2020 form yet, here’s a refresher course on it with the changes for the 2022 W-4 form.
History of the W-4
The federal income tax is a pay-as-you-go tax: you must pay the tax as you earn or receive income during the year. Employees use Form W-4 to let their employer know the amount to withhold and pay for federal income taxes on each paycheck. An employee’s elections on Form W-4 provide the employer with the factors needed to accurately calculate withholding. If an employee does not correctly fill out a W-4, too little tax may be withheld and result in the person owing tax to the IRS when they file their individual return, including potential penalties. If too much federal tax is withheld per paycheck, the individual will overpay the IRS and will receive a refund at the end of the tax year.
For decades, the basis of federal income tax withholding from employees has been marital status and number of allowances. Employees and employers are familiar with terminology such as “Married-3” or “Single-2.” But those designations have changed. With the passage of the Tax Cuts and Jobs Act in December 2017, Congress eliminated withholding allowances as the basis for federal income tax calculation. Because of the sweeping nature of that legislative change, the IRS delayed implementation of a new withholding system in 2018 and 2019. After a few agency revisions and drafts, the redesign of Form W-4 in 2020 aligned the employee’s withholding elections with the language in the federal tax code.
What Changed for Employees?
If an employee had a year 2019 or earlier Form W-4 on file with their employer, those withholding elections could remain in place. The IRS doesn’t require employers to update all existing employees to 2020 W-4 forms, and the same applied for 2021. However, if an employee wanted to make any changes to their federal withholding elections in 2021 or this year, they’ll have to use the new form.
The 2017 Tax Cuts and Jobs Act made some significant updates to the tax code, one of which was to nearly double the standard deduction (from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for joint filers). The standard deductions have increased for 2021 and 2022 as shown in the table below.
|Filing Status||2021 Tax Year||2022 Tax Year|
|Married, filing jointly||$25,100||$25,900|
|Married, filing separately||$12,550||$12,950|
|Head of household||$18,800||$19,400|
How to Fill out a W-4 Form
The 2020 form redesign was intended to be easier for employees to fill out and to accurately tell their employers how much federal income tax they want withheld from their pay.
Employees can elect to withhold federal income taxes for 2021 and 2022 based on marital status alone. To do this, the employee completes only Step 1 (Enter Personal Information) with their name, address, Social Security number and filing status, and Step 5 where they sign and date the form. The result should be less confusion and less time spent navigating the form. It is within optional steps 2, 3, and 4 on the redesigned Form W-4 where the significant changes begin.
Marital Status Box
Married taxpayers or taxpayers who have dependents or more than one job may have to do a little more work. Step 2 asks the employee to specify whether they hold multiple jobs or have a spouse who is also employed.
If the answer’s “yes,” they have to complete Step 2, and then fill out Steps 3 and 4 for just one of the jobs (for the most accurate calculation, the IRS says to use the highest paying job). The IRS helpfully provides a Tax Withholding Estimator calculator to guide employees through the process of estimating their withholdings.
- Accounts for credits and deductions;
- Estimates whether the taxpayer will owe or receive a refund based on current withholdings and the amount of tax owed for the rest of the year;
- Provides guidance for the steps to take if the taxpayer wants a tax refund or if they’d rather get the amount owed as close to zero as possible
To use the calculator for Step 2, some information from the employee’s pay stubs, and prior year tax return, needs to be gathered including: The total amount of wages expected to be paid for the year; the amount of any bonuses; total federal income tax withheld; amount of income tax withheld from the last paycheck.
Step 3 is where the employee can claim dependent exemptions and deducts the $2,000 per-child tax credit out of their withholding ($500 for non-child dependents). And Step 4 is where employees can make additional adjustments, including having tax withheld for additional income (e.g., interest, dividends or retirement income) or calculate if they choose to itemize their deductions at tax time rather than using the standard deduction.
What to do to Prepare
Is there a new W-4 for 2022?
No, Form W-4 has largely stayed the same since the overhaul in 2020. Changes made include revisions to standard deduction amounts and tables in the multiple jobs worksheet.
What is a 2022 W-4 form for?
Employees use Form W-4 to let their employers know the amount they’d like withheld to pay for federal income taxes on each paycheck. An employee’s elections on Form W-4 provide the employer with the factors needed to accurately calculate withholding.
Should you fill out a new Form W-4?
It’s not necessary to fill out a new Form W-4 if your financial situation has remained the same. However, if you’ve married, divorced, had children, changed jobs, or added a job, it’s important to fill out a new form to ensure your withholding is correct.
Why the IRS made W-4 form changes
The IRS gave Form W-4 a complete makeover to reduce the number of fields taxpayer shave to fill out and to increase transparency into how they go about calculating withholding.
How Paycor Helps
We’re proud to keep more than 30,000 organizations informed and compliant with federal and state laws and regulations. Since 1990, Paycor has maintained a core expertise in payroll and compliance. We established our compliance expertise in the Cincinnati tri-state area, one of the most complex tax jurisdictions in the country, which is why we’re able to handle payroll and tax complexities in a way our competitors can’t. If you’re a Paycor customer and still have unanswered questions, please contact your payroll specialist for more support.