If you have a job change or starting a job for the first time, you will likely come across the Form W-4 that you need to fill out. In simple language, Form W-4 is a taxation system provided by the Internal Revenue Service (IRS) to make accurate income-tax withhold from your monthly paycheck.
In 2022 the IRS will release the new version of Form W-4 to enhance the accuracy and transparency of the payroll taxation system. Employees may claim allowances to reduce income deductibles with the revised version, resulting in a lower amount deducted from their paycheck.
However, if you are not switching jobs, you are no longer required to care about submitting a new Form W-4. Your employer may keep using the one attached to your file. In addition, employees are no more required to declare personal or dependent exemptions on the new 2022 Form W-4. Nonetheless, it inquires the number of dependents you may claim and whether you need to lower or increase the tax withheld based on a new side job or itemized deductions.
Form W-4 instructs an employer on making the proper deductions from your paycheck. This is how you can make it work best for you.
A Step-By-Step Guide to Complete the W-4 Form in 2022
Step 1) Provide personal information
To start the new Form W-4, fill out your personal details, including name, address, Social Security Number (SSN), and filing status (closely allied to marital status). You may choose your filing status from these three categories:
- Single or married filing separately
- Married filing jointly or qualifying widow(er)
- Head of household
At this point, you may stop filling out the form and authorize your employee to estimate the default withholding tax. However, the easiest way is not always the best. To smooth the gap between your monthly paycheck and possible tax refunds, you may require to take extra steps.
Step 2) Multiple employments or a working spouse
If you work for two or more jobs or otherwise, your tax filing status refers to married filing jointly, and your partner works at least one job move to step 2. Otherwise, you risk qualifying for a lower withholding rate. With step two, you have three options:
a) Make use of the Tax Withholding Estimator to determine how much your employer should withhold from your paycheck. This strategy is especially preferable if you are self-employed since it combines self-employment and income taxes.
b) Fill out the Multiple Jobs Worksheet if you or your spouse have multiple jobs. However, if you don’t want to provide your employer information regarding additional income, both the online estimator approach and the worksheet method work quite effectively.
c) Consider option C if you and your spouse have two jobs for the two of you. This method works best only if you get almost equal payments on your employment. Otherwise, you may wind up with more income withheld than required by law.
Step 3) Add dependents
Having dependents enables you to move on to step three and fill out Credit for Child Tax and other dependents. The Child Tax Credit is also available to single taxpayers earning less than $200,000 per annum and those married filing jointly that make below $400.000 yearly. According to the IRS, a dependent is a child or relative that relies on you financially. Add $2,000 for each eligible child below the age of 17 and $500 for other dependents.
Step 4) Adjust your withholdings
In this section, you may add other income you receive and authorize the IRS to make extra deductions for your paycheck. If you want to itemize your income deductions rather than opt for a standard deduction rate, make use of the deduction worksheet to notify your employee to reduce tax withholding for a particular pay period.
Step 5) Sign and date new W-4
You are almost done with the difficult phase. All you need to do is sign and date the form before you hand it over to your employer. The Form W-4 is not valid until an employee signs it.
The IRS estimates federal income deductions based on your monthly income; that’s why it’s too essential to complete Form W-4 accurately. If the tax withheld from your paycheck is lower than the law requires, you may get charged extra fees and penalties for underpaying the estimated tax. Meanwhile, on the other hand, if you withhold too much tax, your monthly budget will be more constrained than necessary. Theoretically, you may get instant direct deposit loans from the government if you can save or invest that money. Be informed that you may expect to get back overpaid amounts only next year after submitting a tax return and getting a refund.