When employees have questions about taxes, they often head straight to HR, Finance, or the Business Office.
And now that your employees (like all of us) have begun the process of filing their personal income tax returns, those questions are on the rise!
It’s crucial to encourage your employees to carefully review their pay stubs and Forms W-4 from throughout the year, as these may need adjustment based on changes in their financial situation.
What is Form W-4?
Form W-4 is a mandatory IRS document that your employees must complete so you can determine the amount of withholding. From the IRS:
Form W-4 tells you the employee’s filing status, multiple jobs adjustments, amount of credits, amount of other income, amount of deductions, and any additional amount to withhold from each paycheck to use to compute the amount of federal income tax to deduct and withhold from the employee’s pay.
Background
The Form W-4 has had some changes.
Back in 2020, the IRS rolled out a new Form W4 that allows an employee to claim dependents differently than in years prior. On Forms W4 for years 2019 and prior, an employee would claim dependents using a number (e.g. Four [4] dependents). On Forms W4 for years 2020 and forward, an employee has the option to claim dependents using a dollar amount.
Therefore, in prior years, employees would get a larger tax credit after filing taxes. However, the current W4 calculation process allows for more employees to retain a larger amount of their paycheck throughout the year, and therefore less of a tax credit after filing taxes.
While Checkwriters cannot advise an employee on how to fill out the Form W4, this information can assist employers in explaining to their employees how and why certain items are calculated.
For more details on the different W-4 calculation methods, see our post “Why do my employees owe money to the IRS?” New Form W4 could be the culprit >>
What if My Employees Have Questions?
Given that Form W-4 and income tax filings encompass financial information beyond what is processed through payroll, employees should seek assistance from their income tax preparer, accountant, or utilize IRS tools available to them.
IRS Resources
Below, please find links to several valuable resources available through the IRS:
TOOL: Tax Withholding Estimator >>
This excellent tool assists employees in completing their Form W-4.
- Employees can estimate federal income tax withholding
- Determine how refund, take-home pay or tax due are affected by withholding amount
- Choose their estimated withholding amount depending on their situation
ARTICLE: Topic no. 753, Form W-4 – Employee’s Withholding Certificate >>
- This article outlines your responsibilities as an employer relative to the Form W-4
- Includes information about penalties, exemptions, recordkeeping requirements, and more
PUBLICATION: IRS Publication 15-T – Federal Income Tax Withholding Methods >>
- This article covers the “wage bracket method” employed by Checkwriters
- The “wage bracket method” calculates taxes on a per-pay basis using the information provided by employees on their Forms W-4
Disclaimer: The information contained herein is not intended to be construed as legal advice, nor should it be relied on as such. Employers should closely monitor the rules and regulations specific to their jurisdiction(s) and should seek advice from counsel relative to their rights and responsibilities.