The personal allowances on Form W4 used to be a way to adjust the tax withheld from your wages by the employer. As an employee, you could claim allowances on Form W4 for yourself and dependents you have.
The personal allowance worksheet W4 was a way you could figure out how many allowances to claim but this has been removed with the 2020 changes on Form W4. Instead of claiming allowances, you will now provide basic information about your federal income tax return to help your employer withhold the right amount of tax.
The IRS referred to the changes as making Form W4 a lot simpler, accurate, and transparent. Since your employer knows your tax situation, figuring out the right tax withholding amount is a lot easier whereas allowances could be a way to withhold less tax – which oftentimes resulted in under-withholding taxes, thus, paying underpayment penalties.
Since the new tax year is ahead of us, employees who start working for a new employer in 2021 or have significant changes in the anticipated tax returns. Make sure to fill out Form W4 for the 2021 tax year correctly and provide your employer with the correct information best to your knowledge to allow an accurate amount of tax withholding every pay period.
If you have any problems with how much tax is withheld such as withholding less tax than what you need, you can fill out a new Form W4 2021 and enter an extra withholding amount. The amount entered on this section of Form W4 will tell your employer to withhold extra every pay period.
Keep it in consideration that the extra withholding amount on Form W4 is for each pay period. It isn’t a sum amount, your employer will simply take out the extra withholding amount you entered for every pay period.