Congratulations if you are reading this and you found a new job! We know that these past few years have been extremely hard on a number of industries and finding a job can be very difficult. We hope with your new job you feel mostly excited, and we can take away some of the stress and help navigate the tax treatment of your wages, and guide you through the W4.
At your new job, you will fill out several forms, one of these is federal W4, and a state W4 (unless you reside in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming; these states do not have a state income tax. If you work remotely different from your employer, see the bottom of the article for some tips).
How has the W4 changed?
Starting in 2020, the IRS changed the W4 to remove personal deductible exceptions. Prior W4’s had taxpayers list out a number of exclusions, these helped to include deductible expenses such as personal expenses from a W2 job or expenses for financial planning or investment purposes, all these were allowable deductions. These are no longer deductible, so the W4 was updated to incorporate these changes. Instead, there are just a few steps to walk through to calculate the correct withholding.
There are 5 steps on the form; we will walk through each one:
Step 1: Personal Information
This might be the easiest piece of the form- just your name, filing status, address, and social security go in this section.
Step 2: Multiple Jobs
If you are single and have more then one job, or if you are married file jointly and your spouse also has a job, you will want to pay close attention to this section.
- Keep in mind, you will need to file a W4 for each job you hold. For the highest paying job, you will want to walk through steps 2 through 4b.
- Inside the W4 instructions there will be a The Multiple Job Worksheet. This does not need to be turned into your HR department or the IRS, however you should keep a record for your own copies.
- If you and your spouse make about the same amount and you file together, you can check a box (line c) however keep in mind your spouse MUST ALSO mark this same box.
- You will want to fill out steps 3 and 4 with the highest income job. Skip these steps on your lowest-paying job to find the most accurate withholding.
Step 3: Dependents
If you make less than 200,000 or 400,000 MFJ, you will want to input the number of qualified children under 17, and multiply this number by 2,000 (for example if you have two children, the amount would be 4,000).
Keep in mind if you claim a parent, older child or other dependent, you will want to add the number of other dependents by 500 (for example you have a child enrolled in college that does not claim themselves, and you also care for your mother and you claim her as a dependent, you will put 1,000 on this line to include the two other dependents).
Step 4: Other Adjustments
Should you need to include any other adjustments such as estimated income from your Etsy art or other side hustle/business, this would help you withhold more so you have less tax to pay at filing.
This easy step by step estimator can help you estimate how much extra withholding should be included on your W4.
https://apps.irs.gov/app/tax-withholding-estimator
Step 5: Sign and Date
Done! And, possibly even easier then step 1 😊
No new job: should I update my W4 anyway?
If you recently changed filing status (married, divorced, or you recently qualify for head of household), you will need to adjust your W4 to include your updated filing status.
Pro Tip: If you are single and recently started caring for elderly parent(s), you may be able to claim them on your return and file as head of household if you qualify.
Another possibility if you recently divorced and have a qualifying dependent, you also may be able to file as head of household. (Head of household is a more tax-advantageous, with a higher standard deduction and income limitations for various deductions)
Another change to keep in mind if you had any changes in dependents. If any of your children turned 18 or if you had a new child, you would want to update your W4 and pay close attention to Section 3.
If you had a large tax bill, or if you received a large refund, you may want to think about adjusting your W4 to reflect these changes. A large tax bill at the end of the year might mean you should withhold more, so you don’t need to pay as much when filing. On the other side, too much of a refund means you could have kept some of the money you earned throughout the year. You are allowed to update your W4 at anytime- you can even update after just one paycheck if needed!
What if I work remotely, from a different state?
Countless industries and buisnesses turned to remote working after many state and federal shutdowns took place in 2020. Some individuals even moved during this time, and if you moved out of state of your employer, you will want to work with your HR department to ensure you are filing and paying state taxes as required. Each state is different, and you will want to research the state your buisness is in, and the state you reside. Some instances, you may have to file a state return and pay payroll tax in both states throughout the year.
Pro tip: Your home office will not be a deductible expense on your return if this office is for a W2 job. If you have a separate area strictly for buisness use (this can’t be shared area like a living room), you could deduct a home office expense on your Sch C (profit and loss from business).
Want to learn more, or have questions? Feel free to reach out to us.
