Form W-4, the Employee’s Withholding Certificate, tells your employer how much federal income tax to withhold from your pay and send to the IRS. The IRS redesigned the form in 2020, so it looks different from older versions and no longer uses withholding allowances. This article explains the Form W-4 changes and what they mean for you.

What is Form W-4?

Whatever your employer tells you about your taxes, it is Form W-4 that sets how much federal income tax is taken out of each paycheck. Your employer uses the information you enter to calculate the amount to withhold.

What changed in the redesigned Form W-4?

The biggest change is that allowances are gone, which confused many people. Instead, if you want extra tax withheld, for example because your spouse earns considerably more than you, you enter a dollar amount per pay period.

Many employees no longer remember the number of allowances they put on the form on their first day of work. Under the new form, that number no longer matters.

Why were allowances removed?

Older versions of the form included a Personal Allowances Worksheet to help employees work out how many allowances to claim. The more allowances you claimed, the less your employer withheld, and the fewer you claimed, the more it withheld. Allowances were tied to personal and dependent exemptions, which the Tax Cuts and Jobs Act eliminated, while the standard deduction nearly doubled.

A simpler, more private form

The redesigned form aims to make it easier to work out how much your employer should withhold. It is divided into five steps. It also offers more privacy: if you don’t want your employer to know you have more than one job, you don’t have to hand in the multiple jobs worksheet.

What if you start a job partway through the year?

One option can save you money if you start a job in the middle of the year and were not employed earlier that year. If you will be employed no more than 245 days in the year, ask your employer in writing to use the part-year method to calculate your withholding.

The standard withholding formula assumes you work the full year. Without the part-year method, too much tax is withheld, and you have to wait until you file your return to get it back.

Why does filling out Form W-4 correctly matter?

The IRS requires you to pay tax on your income gradually throughout the year. If too little is withheld, you could owe a surprisingly large amount when you file in April, plus interest and penalties for underpaying during the year. Filling out Form W-4 carefully helps you avoid that.

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