Understanding Form W-4: What You Need to Know for 2024
Understanding Form W-4, Employee’s Withholding Certificate, is crucial for employers and employees alike. While the 2024 version had no major changes, brushing up on your W-4 knowledge is a good idea.
And for employees who haven’t reviewed and updated their Form W-4 in at least a year (or can’t even remember the last time they did), it’s certainly time to do so! This document tells employers how much federal income tax to withhold from an employee’s pay, meaning workers should adjust it when they experience significant life or salary changes.
Keep reading for the latest on Form W-4 and what to keep in mind for this year.
2024 Form W-4 Updates
The new 2024 Form W-4 doesn’t have any overhaul changes, but you should note:
The IRS’s tax withholding estimator for individuals with self-employment income (also applies to spouses with self-employment income)
The new 2024 amounts on the Deductions Worksheet
In addition to making Form W-4 part of your new hire paperwork, you should review the latest version yearly to ensure you accurately withhold employees’ federal taxes and can guide them when they have questions.
How Did Form W-4 Change in 2020?
The last significant Form W-4 update was in 2020. This version was revised to remove withholding allowances, coinciding with the tax law changes of 2018, when the Tax Cuts and Jobs Act suspended the personal and dependency exemptions. It also simplified the W-4 process and improved tax withholding accuracy.
The IRS only made this mandatory for new hires who get their first paycheck after 2019. While existing employees don’t HAVE to fill out a new W-4, they may want to update their withholdings, in which case they’ll need to use the new version.
Because of this, some employers might be managing both the new Form W-4 and those from 2019 and earlier, which can be tricky. The IRS created an optional computational bridge to help employers with this (more on that below).
What Should Employers Know About the 2024 Form W-4?
No Withholding Allowances
There are still no withholding allowances, meaning employees can’t claim them to lower their federal tax withholding. So, if workers want to reduce their withholding, they must claim dependents in Step 3 or use Step 4(b)—Deductions Worksheet (page 3).
Simply put, employees have less withheld from each paycheck, meaning their take-home pay is higher. However, it’s crucial they understand that they still owe the same amount in taxes! This means that if employees want you to withhold more taxes, they can request this in Steps 4(a) (other income not from jobs) and 4(c) (extra withholding each pay period).
If an employee completes 4(c), you must account for the requested amount. If an employee has two jobs or their spouse also works, they may check the box in Step 2 to increase their withholding.
Use the Right Withholding Table
There are two methods (percentage and wage bracket) and several income tax withholding tables employers must use to calculate an employee’s income tax withholding. You might decide which withholding table to use based on whether your payroll system is manual or automated or if the employee submitted an old Form W-4 (2019 or earlier) or a new W-4 (2020 and later). Or you might simply go with the method you prefer.
The percentage method is ideal for complex payroll systems or when more precision is needed, while the wage bracket method is easier for manual calculations or standard payroll systems.
There is a specific percentage method table for automated payroll systems—use this table if you automate payroll! Additionally, certain tables correlate with the old W-4, while others work with the new form. Learn more in IRS Publication 15-T.
Know Which Rate Schedule to Use
The new income tax withholding tables (2020 and later) contain two rate schedules: a “Standard Withholding” and a “Form W-4, Step 2, Checkbox, Withholding” rate. As the IRS advises, use the:
Standard rate if the W-4 is from 2019 or earlier, or if it’s a new W-4 and the box in Step 2 is NOT checked
Checkbox rate if the form is from 2020 or later and the box in Step 2 IS checked
Employees Don’t Have to Complete a New W-4 Yearly
Existing employees don’t have to complete a new Form W-4 each year. They must only fill out the 2024 Form W-4 if they are new hires or want to change their withholding amounts. If a new hire doesn’t fill out the new form, treat them as a single filer with no other adjustments and use the standard withholding rate.
Employers should also note that while they can ask employees with old W-4 forms (2019 and earlier) to complete new ones, they can’t force workers to do so. So if you request new forms from your employees, inform them that they don’t have to, and if they don’t, their income taxes will be withheld according to their last Form W-4.
Understand the Computational Bridge
If you do have a mix of both the old and new versions of Form W-4 on file, it can be a pain to adhere to two different sets of rules and income tax withholding tables.
That’s why the IRS released the optional computational bridge in 2021, which gives employers a four-step process to treat 2019 and earlier forms like the new version for ease and consistency. This method translates the allowances and information from the old W-4 forms into equivalent values that can be used with the new W-4 forms (remember, these don’t have allowances).
To use the computational bridge, have the employee’s 2019 and older W-4 and a new 2020 and later W-4 in front of you. Then follow these steps:
Identify the number of allowances the employee claimed on Line 5 of the old Form W-4.
Multiply the number of allowances by $4,300. This gives you an equivalent amount to use for the new W-4 calculations.
The new W-4 form uses filing status directly, so you’ll need to select their filing status on the new form accordingly. Essentially, if the employee selected:
“Single,” choose “Single”
“Married, but withhold at higher Single rate,” choose “Married filing separately”
“Married,” choose “Married filing jointly”
Determine the standard deduction based on the employee’s filing status for the current tax year.
If the employee requested additional withholding on Line 6 of the old W-4, include this amount in the calculation.
To accurately compute the withholding, input the translated values into the IRS Tax Withholding Estimator or use the IRS Publication 15-T (Federal Income Tax Withholding Methods) to apply the equivalent withholding amount based on the employee’s pay frequency and amount.
How to Fill Out Form W-4
Although it’s been a few years since the new Form W-4 was issued, many haven’t yet updated theirs and may find the process confusing. Employers are the first line of support to help employees avoid owing large tax bills or even penalties. Below are steps to fill out the W-4, which you can use to guide employees through the process.
Step 1: Enter Personal Information
The first section is the same as it’s always been, asking individuals to provide their name, address, Social Security number, and how they plan to file (i.e., single, married filing jointly, head of household, etc.).
Step 2: Multiple Jobs or Spouse Works
This new section trips up many employees—after all, it’s a bit muddy if you don’t understand the ins and outs! This is where an individual must account for income earned from other jobs and/or a spouse’s salary. While this process is new, adjusting withholdings based on multiple jobs to avoid owing additional taxes and penalties is not.
Step 2 now offers three options, allowing employees to calculate the most accurate withholding amount. They should only choose one. Below is a breakdown as advised by the IRS:
Step 2(a): Use the Tax Withholding Estimator at www.irs.gov/W4app for maximum accuracy and privacy on this step (and Steps 3-4). If the individual or their spouse has self-employment income, they should use this option. The employee will need to know their approximate pay for each job, but they’ll enter the additional withholding amount in Step 4(c) on their Form W-4 for only one of the jobs. If their pay at any jobs changes significantly, they’ll need to use the estimator again and complete a new W-4 to change the amount in Step 4(c) to ensure accurate withholding.
Step 2(b): For roughly accurate withholding and privacy without using the estimator, employees can use the Multiple Jobs Worksheet on page 3. Again, they’ll enter an additional withholding amount in Step 4(c), need to know their approximate pay for each job, and enter the additional withholding amount in Step 4(c) on Form W-4 for only one of the jobs. If a change in pay for any job changes the additional withholding amount in the lookup table used with this worksheet, the employee must complete a new W-4 to change the amount in Step 4(c) to have accurate withholding. If the employee and their spouse have a total of only two jobs and the pay at the higher-paying job is more than double the pay at the lower-paying job, this option is generally more accurate than Step 2(c). If the pay at each job is more similar, Step 2(c) is more accurate than Step 2(b).
Step 2(c): If the employee and their spouse have a total of only two jobs at the same time, they can check the box in Step 2(c) on the Forms W-4 for both jobs. This means they should complete a W-4 for each job and check the box in Step 2(c) on both. The standard deduction and tax brackets will be cut in half for each job to calculate withholding. Employees won’t need to fill out a new W-4 to account for pay changes at either job. This option is most accurate for jobs with similar pay; otherwise, more tax than necessary may be withheld from their pay. This extra amount will be higher the greater the difference in pay between the two jobs.
Individuals with one job who are single or married and filing separately can skip Step 2.
Step 3: Claim Dependent and Other Credits
The income levels for child and dependent tax credits also changed on the new Form W-4, providing a higher income threshold. An individual with an income of $200,000 or less ($400,000 or less if married filing jointly) will receive a $2,000 child tax credit for any dependent under age 17. They will also receive $500 for any other dependent (e.g., a parent, grandparent, or adult child who cannot care for themselves).
Employees should only complete this section if they have only one job or are completing the W-4 for their highest-paying job. If they have multiple jobs, they should skip this section on the W-4(s) for their lower-paying jobs.
However, if pay at the employees’ multiple jobs is similar or if changes in pay over time change which is the highest-paying job, it matters less which W-4 they use to make the adjustments in Steps 3 through 4(b).
Step 4: Other Adjustments
Step 4 allows employees to report other non-job-related income (e.g., interest, dividends, and retirement income) and deductions other than the standard deduction. It also provides the option to add extra withholding for each pay period.
This optional step gives employees the most accurate withholding amount, but the Deductions Worksheet entails significant work—so it’s only worth it if their itemized deductions outweigh their standard deduction.
Step 5: Sign Here
It happens more than you’d think! Everyone could use a reminder to take their time to carefully fill out their Form W-4, including their signature—because it is not valid unless the employee signs and dates it.
Find more answers to both employer and employee FAQs about Form W-4, straight from the IRS.
Form W-4: An Essential Piece of Employee Paperwork
While employees don’t necessarily have to update their W-4s annually, it SHOULD be part of your new hire paperwork. You can help employees out by sending friendly yearly reminders to make any applicable adjustments to their tax withholdings if they’ve experienced any significant life or income changes.
As your team grows, however, managing this process can become overwhelming—especially if you have a mix of old and new Forms W-4 on file and use a manual payroll system. In that case, it might be time to step up your accounting and payroll processes, and JLS Accounting will be happy to help! Book an intro call to learn how we can take these tasks off your overflowing plate today.
This article was originally published in April 2024 and has been updated for accuracy and comprehensiveness.