Unlike the big shake-up introduced to the W-4 form in 2020, the 2023 version of the form (also known as “Employee’s Withholding Certificate”) has only a few noteworthy changes.
In this article, we’ve provided an overview of the changes to the 2023 W-4 form, as well as some important general considerations about the form introduced in 2020.
As with any compliance issue, the more prepared and knowledgeable your organization is, the less overall risk, and the more time and money saved down the road. Read on to learn everything there is to know about the W-4 form.
What’s Changed on the W-4 Form in 2023?
Here are the changes the IRS introduced in its 2023 W-4 Form:
- The references to the tax withholding estimator were removed.
- Step 2(c) now includes an explanation to clarify who should check the box for two jobs.
- The Deductions Worksheet amounts were updated for 2023.
Compared to the huge revamp in 2020, these changes are minimal and will not affect the way in which your company processes payroll. You can download the 2023 version of the W-4 form here.
Recent Changes to the W-4 Form
The W-4 Form went through a major overhaul in 2020 in an effort to simplify the overall design, accurately reflect current legislative changes to the withholding system, and make it easier for employees to indicate their individual withholding.
The 2020 changes also eliminated the need for complicated additional worksheets that were previously required for employees who worked multiple jobs.
The new form is divided into five simple steps, where only Steps 1 and 5 are required for completion. Steps 2 through 4 guide employees through a more straightforward process where they can indicate multiple job or working spouse withholding, claim dependents, or make other adjustments (like additional income not from other jobs, expected deductions or voluntary extra withholding).
What is a Withholding Allowance and is it Still Used on the New Form W-4?
A withholding allowance refers to an exemption that reduces how much income tax an employer deducts from an employee’s paycheck. As of 2020, withholding allowances are no longer used. This is due to legislative changes that have done away with personal or dependency exemptions.
The W-4 Form was updated in 2020 to accommodate the changes that were put in place by The Tax Cuts and Jobs Act of 2017, which went into effect in 2018. Among other changes, the Act increased the standard deduction and family tax credits and eliminated personal exemptions.
While the IRS made changes beginning in 2018 to their withholding tables, the Form W-4 was only fully updated in 2020.
Do All Employees Need to Fill Out the 2023 W-4 Form?
Only new employees (paid for the first time in 2023) are required to fill out the 2023 W-4 Form. Employees hired before 2023 are not required to provide an updated withholding form unless they’d like to make adjustments to their existing selections.
A Form W-4 should be completed by all of your employees working in the U.S. so that you know how much to withhold from the employee’s paycheck for federal income taxes.
Can I Automate the Processing of the W-4? What Are the Benefits?
Yes. There are HR Software options for small to midsize businesses that can automate the processing of the new Form W-4, helping to ensure accuracy, safe storage, and an overall reduction in the burden of managing HR – especially the financial burdens caused by noncompliance.
Businesses can save significant time and money when they utilize a software solution that helps streamline the management of hiring, payroll, time and labor, and benefits. Employee satisfaction is also positively impacted when individuals can access a single, complete technology solution to best manage HR practices at their organization.
What Steps are Employees Required to Complete on the 2023 W-4 Form?
The form is divided into five steps, with the only required steps for ALL employees being Step 1 (personal information and filing status) and Step 5 (signature).
- Step 2 is required if an employee holds more than one job at a time or is married filing jointly with a spouse who also works.
- Step 3 (Claim Dependents) is required if the employee will earn an income of $200,000 or less (or $400,000 if married filing jointly).
- Step 4 (Other Adjustments) is optional.
When Should Employees Increase or Decrease Their Withholding on the W-4 Form?
If an employee is seeking advice on increasing or decreasing their withholding, it is best to direct them to a licensed Certified Public Accountant (CPA) or another financial adviser. You can also point them to the IRS FAQ that explains typical scenarios for increasing or decreasing withholding.
How Should an Employee Fill Out Their W-4 if They’re Looking To Increase the Amount of Their Refund?
The IRS states that it redesigned the W-4 in 2020 not only to reflect changes in legislation but to also make it easier and more transparent for an employee’s withholding to accurately match their tax liability.
But if an employee would prefer to have more tax than required withheld from a paycheck (to ensure they get money back in the form of a refund upon filing), then the IRS advises that they increase their withholding in Step 4c. An employee simply designates how much additional they would like their employer to withhold from their paychecks.
It’s important to note that even if an employee doesn’t request extra withholding, they may still get a refund as a result of available, eligible tax credits (including the Earned Income Credit, the Additional Child Tax Credit, or the American Opportunity Credit).
How Has the Form W-4 Changed for Employees With Multiple Jobs?
Before 2020, additional detailed worksheets were required for employees who worked multiple jobs. The IRS suspected that oftentimes, due to confusion or lack of understanding of directions, these worksheets were not completed correctly or simply not included, as required.
Now, under Step 2, the new Form W-4 lists three distinct, simplified options for employees who work multiple jobs and/or are choosing to file jointly with a spouse who also works. The new form allows employees to choose one of these options, which as the IRS describes “involve tradeoffs between accuracy, privacy and ease of use.”
As a general rule, employees who work multiple jobs (or are filing jointly with a working spouse) should be aware that more money should be withheld from the combined pay for all the jobs they hold, as tax rates increase as income increases.
Note that it’s essential for employees who work multiple jobs to make accurate, necessary withholding upfront on their W-4 to avoid penalties or the need to pay additional tax upon filing. For a more detailed explanation of Step 2 (a), (b) or (c) on the new form, please consult the FAQs on the 2020 Form W-4 provided by the IRS.
How Does the New W-4 Affect Employees Who Do Side Work as Independent Contractors?
For those employees who may do additional work (such as independent contracting) outside of their job at your business, they should generally expect to pay both income tax and self-employment tax.
Because the Form W-4 (both the old form and the newly revised one for 2020) is designed primarily for employees who aren’t required to pay self-employment tax, it doesn’t include a section or step for calculating it.
According to the IRS, employers should advise their employees that if they’d like to make an adjustment to their W-4 for self-employment income they receive outside of their job at your business, they should use the available Tax Withholding Estimator or refer to the IRS Publication 505 for more information.
Where Can Employees Go For Help in Completing the W-4 Form?
The IRS provides a detailed FAQ on the 2020 Form W-4, with a dedicated section for common employee questions. Additionally, employees should use the Tax Withholding Estimator in completing their Form W-4, as needed.
As an employer, be sure it’s made clear to your employees at both the time of hire and throughout their tenure at your business how they may request and complete changes to their withholding. An automated payroll system can help simplify this process for employees and employers alike, while ensuring new employees fill out all required new hire forms.
And a reminder that while an employer should offer accurate explanation of required tax forms to their employees, any individual tax advice or guidance should be obtained by a licensed professional.
Find the Help You Need to Manage Complex Compliance Issues
Whether it’s catching up on the 2020 Form W-4 or any other of the fast and frequent compliance-related changes businesses face throughout the year, it can be a struggle to manage the complexity of it all. Deciphering which compliance areas apply to your organization is challenging enough, let alone ensuring you are properly following local, state, federal and agency regulations.
Because of this complexity, businesses often find themselves in a reactive mode after it’s too late – burdened with too much time spent on fixing non-compliance, penalties, or fines. But with the right resources and expertise, your business can move from a reactive mindset to a proactive compliance management program.
Partnering with an HR service provider can provide you with the expertise and guidance you need – whether it’s keeping up with changing tax or labor laws, understanding workers’ compensation insurance, or hanging the right workplace posters in your office. And knowing that compliance is covered by a trusted partner gives you back the time you need to successfully run your business.
Does your business struggle with identifying and complying with relevant labor laws and regulations? Consider outsourcing HR to an experienced partner like VensureHR to help take the time, risk and guesswork out of compliance.