The W-4 form (Employee Withholding Form) is a tax form that employees fill out for their employer that tells them how much federal tax to withhold from their paycheck. It’s required for all employees of a company to fill out. Without it, your employer can withhold taxes at the rate of a single person with zero allowances.
Why it matters
Your W-4 determines how much tax you pay throughout the year. If you hold too much, you’ll get a refund at tax time, but if you withheld too little, you’ll owe the IRS money when you file your return. Some people like myself choose to withhold a little bit more than the general amount, to ensure that I either don’t owe at tax time or get a refund. It’s important to ensure that you’ve filled it out completely and correctly to avoid problems.
What’s on the W-4
The W-4 is a one page form, but is broken down into 5 steps:
Step 1: Personal Information
This is your basic info — name, address, social security number, and how you’re filing for the year.
Step 2: Multiple Jobs or Spouse works
If you have more than one job, or your spouse also works, you’ll need to account for the extra income in your household to ensure enough tax is withheld overall. This part can get confusing, but the IRS offers a worksheet and link to their website to help generate an accurate calculation.
Step 3: Claim Dependents
This is where you can claim dependents (like children or other family) to reduce your tax withholding. For example, you can enter up to $2,000 for each qualifying child under the age of 17.
Step 4: Other Adjustments (Optional)
This step is optional, but if you’d like to withhold additional income, supplementary deductions, or extra withholding.
Step 5: Sign and Date
The form is complete. After signing, you will return it to your employer to be entered.
When to update your W-4
There are times when besides getting a new job, that your W-4 should be updated. If you have any of the following life events happen, you should update your W-4 sooner rather than later:
- Get married or divorced
- Have a child
- Start or end a second job
- Significant income change
Your W-4 isn’t just another form, its your employer’s key to knowing how much federal tax to withhold from your pay. By doing so not only helps them keep in compliance, but helps you keep your paycheck and tax bill in balance. You can stay in control of your money and tax season by understanding what the form is, why it’s required, and why its beneficial to review it every year.
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