What is Form W-4?
Form W-4 also known as Employee Withholding Allowance Certificate is an IRS form, which every employee needs to complete to let their employer know how much federal income tax to withhold from each paycheck. Your employer withholds and remits the tax to the IRS on your behalf, along with your name and Social Security number.
At the end of the year, your employer will send you a Form W-2 showing how much Federal Income Tax (among other things such as wages/salary earned, taxes & deductions, etc.) it withheld from your paycheck throughout the year.
Is Form W-4 Important?
Form W-4 is an integral part of your payroll. Inaccurately completing your W-4 can cause a bevy of issues down the line. It’s the employee’s responsibility to fill the form correctly and accurately. You can run into problems if you don’t include the right number of allowances on the form – it’s up to you get that number right.
If you’ve withheld too little or claimed too many allowances, you have to pay the difference to the IRS in April when you file your taxes. You’ll also have to pay interest and penalties for underpaying your taxes during the year.
If you’ve withheld too much or claimed too few allowances, you will get a refund when you file your tax return in April. Why give an interest-free loan to the government?
If a new employee has failed to complete the Form W-4 before the first payroll, the employer should consider him or her as a single with zero allowances.
The employer should keep a copy of the signed W-4 form because the IRS may request a copy for any employee at any time of the year in order to ensure that they have adequate withholding.
When to Fill Out a W-4?
IRS suggests all the taxpayers update their Form W-4 when a major event occurs in their life such as:
- Starts a new job
- Buys a house
- Have a child
- Adopts a child
- Get married
- Get divorced
- Spouse gets a new job
- Spouse loses the job
- Starts a second job
- You or your spouse freelance
- You only work part of the year
- Salary or wage changes
- Get a dividend income
- Loses a dependant
- Wins a lottery
These events will have a direct effect on the tax amount you owe, so your W-4 should always be correct and updated. You can change your W-4 at any time of the year but you need to ensure you inform your employer about the changes in your W-4 so it can be reflected in your next paycheck.
Download the Form W-4 from the IRS website here. The Form W-4 is in a PDF format that can be printed and filled out by hand or filled out directly on your computer then print it out.
How to Fill Out a Form W-4?
Before filling the form W-4, familiarize yourself by looking over the pages.
Page 1: Brief instructions followed by the Employee’s Withholding Allowance Certificate or Form W-4 itself.
Page 2: More instructions about Form W-4.
Page 3: Personal Allowances worksheet and the Deductions, Adjustments and Additional Income worksheet.
Page 4: Two-Earners/Multiple Jobs worksheet
Let’s get started!
Exemption from Tax Withholding
The first thing W-4 asks you is whether you are exempt from withholding or not? If yes, your employer won’t withhold federal income taxes from your salary.
But you will be exempted from withholdings only if you meet both of the following conditions:
- In 2018, you had a right to a refund of all federal income taxes withheld because you had no tax liability.
- In 2019, you expect a refund of all federal income taxes withheld because you have no tax liability.
You may also claim exemption from withholdings if your income in 2018 was $1,000 or less.
If you are not exempt from withholding, you’ll have three worksheets to fill, in addition to the main W-4 form:
Personal Allowances Worksheet
The Personal Allowances Worksheet is used to determine the number of personal allowances or deductions you can claim. Every taxpayer needs to complete the Personal Allowances Worksheet. The more number of allowances you claim, the less tax your employer will withhold from your paycheck. The fewer allowances you claim, the more tax your employer will withhold.
Some of the examples of things that get you an allowance are having a spouse, kids, or filing as head of household on your tax return.
So, the Personal Allowances Worksheet basically asks you if you are a single or married, if you’ll claim a dependent on your taxes, if you’ll file as head of household, and whether you have dependent child care expenses.
If you are unsure about the allowances you should claim on your W-4, you can use the IRS withholding calculator.
If you are unsure about your filing status, try this simple IRS tool to find your filing status.
Deductions, Adjustments, and Additional Income Worksheet
The Deductions, Adjustments, and Additional Income Worksheet is for those people who need to itemize their deductions (such as charitable donations, deducting mortgage interest or medical expenses), or you need to claim adjustments to your income, or you have unearned income or self-employment income.
Two-Earners/Multiple Jobs Worksheet
The Two-Earners/Multiple Jobs Worksheet is for those people who are married and both of them work or for those unmarried people with more than one job. This worksheet is fairly simple that allows you to calculate how much additional tax should be withheld from your paycheck, based on the second income.
Once you complete the worksheets, you need to fill out the actual W-4 form on page 1.
- Lines 1-4: Enter your name, Social Security number, address, and filing status.
- Line 5: Enter the number of allowances you are claiming (See the number you documented on line H of your personal allowances worksheet or line 10 of your deductions and adjustments worksheet).
- Line 6: Enter the final number from the two-earners/multiple jobs worksheet.
What happens if W-4 information entered is wrong?
If the employer made a mistake when transcribing the information for payroll or if the employee makes an error while filling out the form, it is important for both the employee and employer to inform the IRS about the error at the earliest.
The employer must fill out Form 4670 Request for Relief from Payment of Income Tax Withholding, and the employee must fill out Form 4669 Statement of Payments Received and submit to the employer. The employer submits both the forms to the IRS, and the liability is cleared.
Check out the IRS website for more information on the employer-employee liability for W4 information.