W-4 changes: what you need to know

In the US, Form W-4 is an important tax document for employers.

In recent years, though, it’s undergone several significant changes. While these changes are designed to make the form easier to fill out, it can still be difficult to understand.

To remove the confusion and keep you up to date, we’ll explain the latest changes and what they mean for you and your employees. We’ll also look at how employees should fill out Form W-4, and what you as an employer need to do.

So let’s jump right in.

What is Form W-4?

Internal Revenue Service (IRS) Form W-4 — also known as the Employee’s Withholding Certificate — tells you how much of your employee’s paycheck you need to withhold for federal income taxes each month. It’s your employees’ responsibility to fill out the form and submit it to you.

The withholding figure is calculated based on multiple factors, including your employee’s marital status, the number of dependents, whether they have a second income, or if they expect to have deductions that will be itemized on their tax return. 

When do employees need to fill out a new W-4 form?

Employees must complete a new W-4 form whenever they start a new job, or when they wish to modify their tax withholding. They must update their tax withholding amount if their financial status or situation changes, which might come as a result of starting a second job, getting married or divorced, or having children. 

2024 W-4 changes

There are two minor changes to Form W-4 for 2024: 

1. Step 2, Section (a) of the form now prompts you to the IRS’s W-4 tax withholding estimator tool

2. The deduction amounts have been updated on the Deductions Worksheet

As these changes are so minor, the IRS isn’t requiring employers to update their employees on the new W-4 form.

Why did the IRS update Form W-4? 

The IRS adjusts Form W-4 each year to simplify the language and reflect updated income limits, current tax rates, and deduction amounts that change due to inflation rates. 

For example, the previous redesign made drastic changes to Form W-4 to better match the changes in the Tax Cuts and Jobs Act. 

The recent updates also make it easier to calculate withholding amounts with the estimator tool, and help ensure standard deduction amounts keep up with inflation. These changes reduce the complexity of filing, while also increasing the withholding system’s transparency and accuracy. 

What does the new W-4 form mean for employees?

In essence, the new W-4 form simplifies the form-filling process and ensures more accurate withholding amounts. 

The withholding estimator tool gives employees the highest chance of having the right amount of taxation withheld, preventing overpayment and underpayment of federal income taxes. 

This is important as, when employees have inaccurate withholding amounts, they can potentially:

• Face fines for paying too little each month

• Need to wait until tax return season to reclaim the extra money they’ve paid 

In addition to the estimator tool, the new W-4 form has updated standard deduction amounts to adjust for inflation, as follows: 

When do employers need to put the new Form W-4 into effect?

If you receive a new or revised W-4 from one of your employees, you need to put it into effect no later than the beginning of the first payroll period that falls on or after 30 days from the day you receive the form (unless the form is invalid).

Do employees need to submit a new W-4 form?

No. According to the IRS, employees who have submitted a W-4 in any year before 2020 aren’t required to submit a new form just because of the revamp. Employees only need to submit a new W-4 form if, as mentioned, they wish to change their withholding amount. 

When should employees increase their withholding?

Your employees should increase their withholding if: 

1. They have more than one job or they’re married and their partner also has a job. This should be reflected in Step 2 of the form.

2. They have income from sources that aren’t subject to withholding (not including self-employment). This should be reflected in Step 4(a) of the form. 

If your employee doesn’t make these adjustments, it’s likely that they will owe additional funds when filing for tax returns. They may even potentially be liable for penalties. 

When should employees decrease their withholding?

Conversely, your employees should decrease their withholding if: 

1. They’re eligible for income tax credits, such as child tax credits. This should be reflected in Step 3 of the form.

2. They’re eligible for deductions other than the basic standard deduction, such as itemized deductions, deductions for student loan interest, or deductions for IRA contributions. This should be reflected in Step 4(b) of the form.

When can an employee file for tax refunds if their withholding amount is too high?

After an employee has filed, they can check the status of their tax refund by through the Where’s My Refund? Tool on the IRS website. The status of their refund is available 24 hours after the IRS accepts their tax return, and the tool updates once a day. 

If an employee files electronically and chooses direct deposit for their refund, they may receive their refund within 24 hours. If they file by paper, they may have to wait several weeks for their tax return. 

Although the IRS issues more than nine out of 10 tax refunds within 21 days of filing, there is still the potential for delays. Having an accurate withholding amount helps employees avoid this wait. 

What does it mean for an employee to claim an exemption from withholding?

In some cases, employees can tell you not to deduct any federal income tax from their paycheck. 

They can only claim this exemption if both of the following criteria apply: 

1. In the previous year, they had no tax liability and a right to a refund of all federal income tax that was withheld from their paycheck.  

2. For the current year, they expect to have no liability and a refund of all federal income taxes that’ll be withheld from their paycheck. 

It’s important to note that exemption claims are only valid for one calendar year. If employees are eligible and wish to continue claiming exemption, they must submit a new W-4 form claiming exemption by February 15. If they miss this deadline, their tax withholding status will be “single” or “married filing separately,” with no other entries in Steps 2, 3, or 4 of the form. 

If your employee files a new W-4 on or after February 16, the form applies to all future paychecks for that year. If they don’t update their W-4 form in time, they won’t be eligible for a tax refund. 

Which withholding table should employers use?

To accommodate the old and new Form W-4, the IRS is using several different tax withholding tables for 2024. These tables use the percentage method or the wage bracket method to calculate the withholding amount. 

The table you choose will depend on whether:

• Your company uses a manual or an automated payroll system

• Your employee uses the old Form W-4 or the new Form W-4 (see next section)

• You want to use the percentage method or the wage bracket method to work out the tax withholding amount

Generally speaking, the following applies:

• If you use an automated payroll system and either the new W-4 or old W-4, you’ll use Percentage Method Tables for Automated Payroll Systems and Withholding on Periodic Payments of Pensions and Annuities.

• If you use a manual payroll system and the 2020 or later W-4 forms, you can choose between Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later or Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later. Note that you can’t use this table if your employee earns more than $100,000 yearly.

• If you use a manual payroll system and the 2019 and earlier W-4 forms, you can choose between Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2019 or Earlier or Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From 2019 or Earlier. Note that you can’t use this method if your employee earns more than $100,000 or claims more than 10 allowances.

As you can see, using an automated payroll system makes it much easier to calculate withholding amounts. 

Remote’s payroll system is automated. It simplifies payroll management by storing all relevant information in a centralized location, and ensuring your employees’ payroll data is accurately captured, safely stored, and easily accessible for you whenever you need it. 

What should employers do with old versions of Form W-4?

The new version of the W-4 form was released in 2020, overhauling the withholding system, removing withholding allowances, and replacing them with deductions. This switch complemented the existing changes to related tax laws in 2018, simplifying the filing process for employees and improving withholding accuracy. 

Therefore, W-4 forms submitted in 2019 or earlier use withholding allowances and are considered “Old Form W-4s.” 

W-4 forms submitted in 2020 and later don’t use withholding allowances and are considered “New Form W-4s.” They contain the following five sections, or steps: 

1. Enter Personal Information

2. Multiple Jobs or Spouse Works

3. Claim Dependent and Other Credits

4. Other Adjustments

5. Sign Here

Of these steps, only Step 1 and Step 5 are required. Steps 2–4 are only necessary for applicable employees to fill out. 

Simplify payroll with Remote

The W-4 changes for 2024 were minor, simplifying things for you and your employees. 

If you’re looking to simplify your payroll even further, Remote’s automated payroll system makes it easy. Your employees can log accurate time and attendance data to ensure they receive error-free paychecks every month, and ensure your withholding and payroll tax obligations are met compliantly.

To learn more about how Remote can help, speak to one of our friendly experts today!