In 2020, the IRS updated the Federal W4 form that eliminated withholding allowances. The redesigned Form W4 makes it easier for withholding to match your employee's tax liability.
If the employee's W-4 on file is in the old format (2019 or older), toggle "Use new Form W-4". Your employee is currently not required to update it. If they do need to update it for any reason, they must now use the new Form W-4.
Here’s how to answer the new questions.
Step 2: select true if the employee has more than one job or if their spouse also has a job. This will increase withholding.
Step 3: enter an amount for dependents. The old W4 used to just ask for the number of dependents. The new W4 asks for a dollar amount. Here’s how to calculate it: If the employee's total income will be $200k or less ($400k if married) multiply the number of children under 17 by $2,000 and other dependents by $500. Add up the total.
Step 4a: extra income from outside of their job, such as dividends or interest, that usually don't have withholding taken out of them. By entering it here there will withholding for this extra income.
Step 4b: any additional withholding the employee wants taken out.