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).
On the other hand, 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). You must account for the requested amount if an employee completes 4(c). 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.
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.
