All About IRS Form W-4

The IRS completely redesigned Form W-4 in 2020. They got rid of allowances, created a new 5 step process, and aligned the form with the Tax Cuts and Jobs Act to be easier to fill out. The main goal was to prevent people from under-reporting their allowances, which would cause them to owe more taxes on their tax return.  

Here is what you can expect to find on IRS Form W-4.   

Personal withholding allowances eliminated 

One of the biggest changes of the redesigned form is the elimination of personal withholding allowances. Allowances have been replaced by a 5-step process and new Federal Income Tax Withholding Methods to determine your withholdings.  

Focus on dependents and other tax credits  

In the new 5 step process, Step 3 lets you indicate that you are eligible for the Child Tax Credit or the Other Dependent Credit. You can also indicate that you are eligible for other credits like education tax credits to calculate your withholding amount more accurately.   

Account for additional adjustments  

Step 4 of the form provides an optional section where you can:    

  • Make adjustments for additional withholding if you have income like interest, dividend, and retirement income.    
  • Reduce withholding if you have itemized deductions or additional tax deductions, like student loan interest. Any deductions apart from the standard deduction are indicated here.  
  • Enter additional income tax you would like withheld from each paycheck. This may include amounts that need adjustments because you or your spouse may have more than one job.   

Exemption line is removed  

There is not a separate section for claiming exemptions from withholding. However, you can still claim an exemption by writing “Exempt” below 4C.  

How many allowances should I take on Form W-4?   

Allowances are no longer used on Form W-4. Before the Tax Cuts and Jobs Act, allowances were tied directly to the personal exemption. The TCJA eliminated personal exemptions, so the IRS updated Form W-4 to align with the new law and make filling out the form easier.   

There is a new 5 step process that you will follow instead of taking allowances.  

Step 1 – Enter your personal information  

Step 2 – Enter multiple jobs or indicate that your spouse also works  

Step 3 – Claim dependents  

Step 4 – Indicate other adjustments (optional)  

Step 5 – Sign the form  

How do I fill out Form W-4 if I have 2 jobs?   

Step 2 on Form W-4 lets you account for multiple jobs. It’s important to report all your earnings on a W-4, so the proper amount of income tax is withheld. If you have a side gig, you are self-employed, or you receive a Form 1099, you can include that additional income on your W-4 as well.  

Note: If you are married, Step 2 is also where you would indicate that your spouse works.

This article was last updated on September 20, 2021.  

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.