Payroll Briefs

IRS Issues 2021 Form W-4 with Minor Updates

January 25, 2021

The Internal Revenue Service (IRS) has recently released the 2021 Form W-4 (Employee’s Withholding Certificate). While the new form is quite similar to its 2020 counterpart, there are a few small updates all employers should be aware of. DM Payroll Solutions breaks down the 2021 Form W-4 changes to ensure you have all the answers for your employees.

Multiple Jobs Worksheet

When using the Multiple Jobs Worksheet, note that the amounts in the tax tables have been updated for 2021.

Deductions Worksheet

The amounts to enter on Line 2 of the Step 4(b) (Deductions Worksheet) have been updated to $25,100 if married filing jointly or a qualified widower, $18,800 if filing as head of household and $12,550 if single or married filing separately.

Medical Costs in Excess of Income

When it comes to accounting for medical costs, it’s crucial for employers to provide their employees with the most up-to-date version of the 2021 Form W-4. There was a previous version issued by the IRS with the percentage of medical costs in excess of income stated as 10%, but it is now 7.5% courtesy of the Consolidated Appropriations Act, 2021.

Claiming Exemption from Withholding

Employees are permitted to claim exemption from withholding in 2021 if both of the following conditions are satisfied:

  1. The employee had a right to a refund of all federal income tax withheld for 2020 since they didn’t have any tax liability.
  2. The employee expects a refund of all withheld federal income tax for 2021 as they don’t anticipate any tax liability.

Taxpayers are considered as not having any federal income tax liability in 2020 if Line 24’s total tax on their 2020 Form 1040 or 1040-SR is zero or less than the sum of Lines 27-30, or they weren’t required to file a return because their income fell below the filing threshold for their respective filing status.

In order to claim exemption from withholding, an employee must confirm they meet both of the above conditions by writing “exempt” on the new Form W-4 below Step 4(c). To validate the form, the employee must only complete Steps 1(a), 1(b) and 5 and sign and return the form. The exemption for 2021 expires on Feb. 15, 2022.

Nonresident Aliens

The new form’s instructions recommend nonresident aliens to evaluate Notice 1392 (Supplemental Form W-4 Instructions for Nonresident Aliens) prior to completing and submitting their Form W-4.

Stay Up-to-Date

With the 2021 Form W-4 differing slightly from the 2020 version, it is important to provide your employees with the most recent copy available. If you have any questions about the new Form W-4 or need help reporting your employees’ withholding information, contact DM Payroll Solutions today.