Accurate tax withholding is a critical component of payroll compliance for businesses. While the Internal Revenue Service (IRS) substantially redesigned Form W-4 beginning in 2020, many employers and employees still have questions about how it differs from prior versions and when a Nebraska Form W-4N is required. Whether you're onboarding a new employee, updating withholding after a life event, or simply reviewing payroll processes, understanding these forms can help prevent surprises at tax time and ensure compliance with federal and state requirements.

What is Form W-4?

Form W-4, Employee's Withholding Certificate, lets employees tell their employers how much federal income tax should be withheld from each paycheck. The form was redesigned in 2020 to better align withholding with an employee's actual tax situation.

Unlike prior versions, the current form no longer uses withholding allowances. Instead, employees provide information related to filing status, multiple jobs, dependents, deductions, and other income to calculate a more accurate withholding amount.

Why do the Form W-4 changes matter?

The current Form W-4 gives employees more control over their withholding and can help reduce large tax bills or unexpected refunds when filing a tax return. The form is also designed to accommodate situations that have historically created withholding challenges, such as:

• Multiple jobs
• Dual-income households
• Significant investment income
• Dependents and tax credits
• Itemized deductions
• Mid-year life changes

Current W-4 vs. Pre-2020 W-4

The IRS recommends reviewing your withholding annually and whenever your personal or financial circumstances change.

Who must complete a Form W-4?

A new Form W-4 is generally required when:

• A hire begins employment
• An employee wants to change their federal tax withholding
• An employee experiences a significant life or financial change, such as marriage, divorce, the birth of a child, or taking on a second job
  
  

How do you complete a Form W-4?

1. Enter Personal Information

This includes:

• Name
• Address
• Social Security Number
• Filing status

2. Multiple Jobs or Spouse Works

This step is used if:

• The employee works more than one job; or
• A spouse also earns wages.

3. Claim Dependents

Employees may claim eligible tax credits for qualifying children and other dependents.

4. Other Adjustments (Optional)

Employees can:

• Report other income not from jobs
• Account for deductions exceeding the standard deduction
• Request additional withholding

5. Sign the Form

The employee signs and dates the form. Without a signature, the form is not valid.

Common Areas of Confusion

Multiple-Job Households

Employees often overlook Step 2 when both spouses work or when an individual has multiple jobs. Failure to complete this section correctly can lead to insufficient withholding and a larger tax bill at year-end.

Deductions in Step 4(b)

Employees should enter only the amount by which their expected deductions exceed the standard deduction, not their total anticipated deduction.

Privacy Concerns

Some employees may not want to disclose details about other jobs or income sources to their employer. In these situations, the IRS suggests using its withholding estimator and entering an additional withholding amount in Step 4(c) instead.

What is Form W-4N?

Because Nebraska's tax rules differ from federal tax laws, the state requires its own withholding certificate, known as the Nebraska Withholding Allowance Certificate (Form W-4N).

The form is used to determine Nebraska state income tax withholding and allows employees to:

• Claim withholding allowances for Nebraska purposes
• Request additional state withholding
• Claim exemption from Nebraska withholding when eligible

Unlike the federal Form W-4, Nebraska's Form W-4N still utilizes a withholding allowance system.

Federal W-4 vs. Nebraska W-4N

Employer Payroll Considerations

Proper withholding isn't just an employee responsibility. Employers play a key role in maintaining payroll compliance and accurate tax reporting. Businesses should:

• Use the current federal and state withholding forms during onboarding.
• Establish procedures for storing employee withholding forms and payroll records.
• Communicate with employees when payroll-related forms should be reviewed.
• Monitor payroll processes to ensure withholding changes are implemented accurately and timely.
• Work with trusted accounting advisors when payroll questions arise regarding compliance.

Proactive payroll management can help reduce administrative headaches and minimize compliance risks.

Navigating Form W-4 & W-4N Requirements

The redesign of Form W-4 eliminated withholding allowances at the federal level and shifted toward a more personalized approach to calculating income tax withholding. While the transition occurred several years ago, confusion still exists, particularly when employees must complete both a federal Form W-4 and a Nebraska Form W-4N.

Understanding the differences between these forms can help businesses reduce administrative challenges and maintain compliance with federal and Nebraska withholding requirements. Employers should also remind employees to review their withholding elections whenever significant life or financial changes occur. Taking a proactive approach can help employees avoid underpayment penalties and unexpected tax balances when filing their returns.

If you have any questions about accounting matters affecting your business, please contact us or your accounting advisor. Our Outsourced Accounting team is here to help businesses navigate evolving requirements and make informed financial decisions.