The tax filing season will require a lot of work if you recently switched your job or have just started your first job. You will have to review several documents to update them and might have to learn a lot about tax filing. Besides, the revisions made by the IRS for tax filing are also something most tax filers will have to review and comply with.
Form W-4 is also one of the forms every employee who has just joined a new organization will have to redo according to the paycheck at the new job place. IRS has notified that Form W-4 has been revised and updated to increase the accuracy and transparency in the tax withholding system from payroll.
And if you are someone who hasn’t changed his job in years, there is nothing much you have to worry about. Today’s article will discuss a list of allowances you can claim on your Form W-4. Even though your employer can continue using the old form, it is always good to know what allowances you can claim and how to decrease your withheld amount.
So let’s get into it.
- Form W-4, known as the Employees’ Withholding Certificate, is completed by the employees and used by the employer to itemize the withholding tax that would be deducted from the employee’s paycheck.
- After the Tax Cuts And Jobs Act 2017 was made a law, the IRS revised Form W-4 as the older version was no longer a reliable method to compute the withholding tax. The revisions include the removal of personal exemptions and the inclusion of standard deductions for tax filers.
- The tax filers can claim dependents and itemized deductions in their new Form W-4.
- The employees who haven’t changed their jobs in the last few years are allowed to go with their old Form W-4 with personal exemptions and allowances.
What Is Form W-4?
Form W-4 is the form that an employer uses to know the amount of withholding taxes that must be deducted from employees’ paychecks. However, employees are required to fill out this IRS form by reporting the allowances, income, deductions, etc., so that the taxes are withheld accurately.
The employers use Form W-4 to withhold the taxes and remit these taxes directly to the IRS or state(depending on the applicability of the taxes) on behalf of their employees. It is not such a form the employees must fill out every year, but the employers can use the same Form W-4 year after year.
IRS titles Form W-4 as Employee’s Withholding Certificate. IRS defines the Form W-4 as,
“Form W-4, Employee’s Withholding Certificate, has to be completed by employees so that employers can know how much tax has to be withheld from the employee’s paycheck.”
Revision In Form W-4
Before we talk about the allowances that can and can’t be claimed on Form W-4, it is important to know the recent adjustments and revisions made by the IRS to improve the accuracy and reliability of the tax reporting.
The first revisions in Form W-4 were made in the year 2020.
The IRS has made changes because some tax filers might report low income or withhold lower taxes. In some circumstances, the tax filers might receive a higher refund than usual. Therefore, the IRS has changed Form W-4 so that no one owes more tax or gets a higher or lower refund than what you should get.
The history behind the changes is motivated by the Tax Cuts and Jobs Act(TCJA) which became law in 2017. TCJA removed personal exemptions, made child tax credits available for more tax filers, and increased the standard deductions for tax filers.
Due to the adjustments made because of TCJA, Form W-4 was no longer a reliable form to compute the withholding tax.
Due to the removal of personal exemptions and deductions, Form W-4 could not estimate the correct amount of withholding taxes. Therefore, IRS changed a half-page Form W-4 to a full-page form that is easier to understand and file even if you’re a beginner. The new form explains every adjustment you have to make in your Form W-4.
List Of Allowances You Can Claim On Form W-4 Before 2019
Before we talk about the list of allowances you can claim in 2022, let’s briefly overview the allowances available on Form 2019. You need to know these allowances in case when your employer is still using the old Form W-4 for withholding tax calculation.
So here is the list of allowances you could claim on your Form W-4 before 2019:
Allowance For Yourself
You could claim one allowance for yourself irrespective of your marital status, whether married or single. He would write 1 in line A of the Form W-4 and could claim one allowance.
Single And Only One Job
As a single tax filer, if you live alone and are currently doing only one job, you would write 1 in both lines A and B. It will entitle you to a total of two allowances on your income.
Allowance For Your Spouse Dependent On You
If a married person is filing form W-4 and the spouse is not working. He will claim the spouse as a dependent when paying more than 50% of the costs of the dependent.
Allowance For Each Dependent You Report
Besides the spouse, the tax filer will claim allowances for his children. The allowance depends on the number of children and if you are supporting more than 50% of living expenses for your dependents.
Additional Allowance When Filing As Head Of Household
The Part E of Form W-4 allows the tax filers to claim an additional allowance when they are filing as a head of household. Such a tax filer is eligible to claim an allowance when he is a single individual paying more than 50% of the costs of having a home for his dependents and himself.
Additional Allowance For Child Care Expenses
Part D allows the tax filers to report their dependent children and claim additional allowances. A tax filer can claim up to $1000 per child, depending on the tax filer’s income.
How many allowances Can You claim on Form W-4 In 2022?
Now to the important question: how will you fill your Form W-4 in 2022, and what allowances can you claim after the revisions? So here is everything you need to know.
Step 3 of the new Form W-4 allows the tax filers to claim dependents if their income is less than $200,000 as a single or married filing separately. If married couples filing jointly, you can claim dependents if your income is $400,000 or less.
For child dependents under the age of 17, you will be eligible for an allowance of $2000 per child.
For other dependents, you will put $500 for each dependent.
After the revisions in Form W-4 and the implications of TCJA 2017, the tax filers can make standard deductions based on their filing status. As we mentioned above, the personal exemptions have been removed from Form W-4, and standard deductions have been replaced them. For the year 2022, the amounts of standard deductions are as follows:
Married Filing Jointly Or Qualified Widows (er) will claim a standard deduction of $25,900, which is $800 more than in 2021.
The head of household will claim a standard deduction of $19400, which is $600 more than in 2021.
Single Or Married Filing Separately will claim a standard deduction of $12950, which is $400 more than in 2021.
One thing that is important to note here is that you don’t have to mention these deductions anywhere on Form W-4. The Form W-4 assumes that the tax filers have taken the standard deductions when he/she skips using the deductions section in Line 4(b) of Form W-4.
The step 4 of the Form W-4 allows you to report income from other sources, deductions and extra withholding. It is an optional section and the deductions you will claim here are called itemized deductions. These deductions can include gifts to charity, medical & dental expenses, personal property taxes, mortgage interests, real estate taxes, sales taxes, local income tax, etc.
The general practice is to claim the itemized deductions when these deductions exceed the standard deductions. However, states like Michigan and Massachusetts don’t allow tax filers to claim itemized deductions on their Form W-4.
Filling out Form W-4 is necessary for people who have joined their new jobs after 2019, and you must file according to the revised version. We hope that this comprehensive guide on the list of allowances you can claim with Form W-4 will help you file your Form W-4.