2023 W-4 Changes: What HR Leaders Need to Know

In case you haven’t heard, the W-4, or Form W-4 has been updated for 2023. What does this mean for employers? Fortunately, not much has changed. And, the IRS is not requiring all employees to complete the revised form.

What is a W-4 Tax Form?

Form W-4 is an important part of compliance landscape and completed whenever an employee starts a new job or modifies their tax withholding status.

History of the W-4

The federal income tax is a pay-as-you-go tax: you must pay the tax as you earn or receive income during the year. Employees use Form W-4 to let their employer know the amount to withhold and pay for federal income taxes on each paycheck. An employee’s elections on Form W-4 provide the employer with the factors needed to accurately calculate withholding. If an employee does not correctly fill out a W-4, too little tax may be withheld and result in the person owing tax to the IRS when they file their individual return, including potential penalties. If too much federal tax is withheld per paycheck, the individual will overpay the IRS and will receive a refund at the end of the tax year.

For decades, the basis of federal income tax withholding from employees has been marital status and number of allowances. Employees and employers formerly used terminology such as “Married-3” or “Single-2.” But those designations have changed. In December 2017, Congress eliminated withholding allowances as the basis for federal income tax calculation. Today, the Form W-4 is aligned the employee’s withholding elections with the language in the federal tax code. Taxpayers whose income is under $400,000 (married filing jointly) or $200,000 (other filing statuses) must multiply the number of qualifying children under 17 by $2,000 and any other dependents by $500 and enter those dollar figures on the form.

What Changed for Employees?

Not much. The IRS doesn’t require employers to update all existing employees to 2023 W-4 forms, and the same applied for 2022 and previous years. However, if an employee wanted to make any changes to their federal withholding elections in 2023, they’ll have to use the new form.

If it’s been a while since an employee has completed a W-4, it’s important to note that the 2017 Tax Cuts and Jobs Act made some significant updates to the tax code, one of which was to nearly double the standard deduction (from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for joint filers). The standard deductions have increased for as shown in the table below.

Filing Status 2022 Tax Year 2023 Tax Year
Single $12,950 $13,850
Married, filing jointly $25,900 $27,700
Married, filing separately $12,950 $13,850
Head of household $19,400 $20,800

How to Fill out a W-4 Form

The 2023 form continues the trend of the 2020 redesign which was intended to be easier for employees to fill out and to accurately tell their employers how much federal income tax they want withheld from their pay.

Employees can elect to withhold federal income taxes for 2022 and 2023 based on marital status alone. To do this, the employee completes only Step 1 (Enter Personal Information) with their name, address, Social Security number and filing status, and Step 5 where they sign and date the form. The result should be less confusion and less time spent navigating the form. It is within optional steps 2, 3, and 4 on the redesigned Form W-4 where the significant changes begin.

Marital Status Box

Married taxpayers or taxpayers who have dependents or more than one job may have to do a little more work. Step 2 asks the employee to specify whether they hold multiple jobs or have a spouse who is also employed.

If the answer’s “yes,” they have to complete Step 2, and then fill out Steps 3 and 4 for just one of the jobs (for the most accurate calculation, the IRS says to use the highest paying job). The IRS helpfully provides a Tax Withholding Estimator calculator to guide employees through the process of estimating their withholdings.

The calculator:

  • Accounts for credits and deductions;
  • Estimates whether the taxpayer will owe or receive a refund based on current withholdings and the amount of tax owed for the rest of the year;
  • Provides guidance for the steps to take if the taxpayer wants a tax refund or if they’d rather get the amount owed as close to zero as possible

To use the calculator for Step 2, some information from the employee’s pay stubs, and prior year tax return, needs to be gathered including: The total amount of wages expected to be paid for the year; the amount of any bonuses; total federal income tax withheld; amount of income tax withheld from the last paycheck.

Step 3 is where the employee can claim dependent exemptions and deducts the $2,000 per-child tax credit out of their withholding ($500 for non-child dependents). And Step 4 is where employees can make additional adjustments, including having tax withheld for additional income (e.g., interest, dividends or retirement income) or calculate if they choose to itemize their deductions at tax time rather than using the standard deduction.

What to do to Prepare

We suggest reviewing the 2023 W-4 instructions from the IRS.

Is there a new W-4 for 2023?

Yes. However, Form W-4 has largely stayed the same since the overhaul in 2020. Changes made include revisions to amounts in Step 4(b).

What is a 2023 W-4 form for?

Employees use Form W-4 to let their employers know the amount they’d like withheld to pay for federal income taxes on each paycheck. An employee’s elections on Form W-4 provide the employer with the factors needed to accurately calculate withholding.

Should you fill out a new Form W-4?

It’s not necessary to fill out a new Form W-4 if your financial situation has remained the same. However, if you’ve married, divorced, had children, changed jobs, or added a job, it’s important to fill out a new form to ensure your withholding is correct.




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