Even if you utilize the expert help of a third-party for W-4 preparation, it is in your best interest to learn the basics about W-4 forms, who must fill them out, and how to do it correctly. There are many fields to be completed, along with worksheets and forms, and some fairly simple processes can appear quite complex on these crowded, busy forms. However, the W-4 form is relatively straightforward if you move through it a step at a time and double check entries to reduce the risk of errors.
What Is a W-4?
The W-4 form is utilized by employers to ensure the proper amount of federal income tax is collected from your paycheck. The Internal Revenue Service (IRS) recommends that all employees complete this form annually to avoid missing any changes that would reduce or increase the amount of federal income tax deducted. This is especially important if you undergo any income or personal changes during the fiscal year, such as filing for divorce or becoming legally married.
The W-4 should not be confused with the W-2 form, which has to do with an employee’s tax situation. These forms sound similar, but serve two separate functions. The W-4 form is utilized to calculate the correct amount of federal income tax that should be withheld from your paycheck, and this percentage is dependent on your marital status, number of children, home ownership, saving contributions, etc. Each January, employers must provide W-2 forms to all employees who worked for them during the prior calendar year. The W-2 form includes the total amounts of federal and state taxes withheld, wages earned, and contributions to Social Security for a given tax year, and it should be submitted along with the IRS form 1040. Note that if you worked for more than one employer during a calendar year, you’ll receive a separate W-2 from each company.
The Basic Steps of Filing
Very few people are exempt from filling out and filing a W-4, but it is a good idea to check whether or not you are one of these few. A person can generally only claim exemption if they earn less than $10,350 for the entire year. If a person can claim you as a dependent and you earned $6,300 or less for the year, you may also claim exemption, but it is imperative that you know without a doubt that you meet exemption criteria to avoid a large tax bill with added late payment penalties when it comes time to file.
The bulk of the W-4 is composed of three worksheets: The Personal Allowances Worksheet (for everyone), Deductions and Adjustments Worksheet (for those with many deductions), and the Two-Earners/Multiple Jobs Worksheet (for those with two or more jobs, or married people who both work). It is imperative that you report all secondary income to ensure the proper amount of federal tax is withheld because this will reduce the chance of a larger tax bill after filing. On the Personal Allowances Worksheet, you can spell out the deductions associated with your situation.
Examples of this include:
- SINGLE, ZERO ALLOWANCES: For if you are not married, do not have children, are claimed on a parent’s tax return, and you are a student.
- MARRIED, TWO ALLOWANCES: You are married and only one spouse is working.
If you take any major deductions or credits that lower your taxable income significantly, it is important that you fill out the Deduction and Adjustments worksheet. You should also definitely fill out this form if you itemize your deductions. This can be useful if you have specific, large expenses you can deduct, such as charitable contributions, mortgage interest payments, medical expenses, etc. The IRS has a useful withholding calculator available that will walk you through the process and make it a bit easier to find your total itemized deductions along with your adjustments to income, which will also simplify filling out this worksheet.
If you and your spouse both hold jobs, or if you bring income into the home from two or more jobs, you need to fill out and file the Two-Earners/Multiple Jobs worksheet. This is fairly simple and is designed to calculate how much additional federal tax should be withheld from your paycheck, based on the amount of the second income source.
On Line 1 of the form, enter your total from the Deductions and Adjustments worksheet. From there, use the tables to fill in lines 2-9. The first table is for the second, lower paying job and table 2 is for the higher paying job. These should make it fairly straightforward for you to find your allowances based on the incomes.
Filling Out the W-4
Now that you’ve completed all of the worksheets, moving onto the actual W-4 should be significantly less time-consuming. Lines 1-4 are fairly standard, asking for your name, address, social security number, and tax filing status. In line 5, enter the number calculated from line H of your personal allowances worksheet UNLESS you filled out the Deductions and Adjustments worksheet, in which case you should enter the number calculated from Line 10 of that form.
If you filled out the Two-Earners worksheet, the amount you calculated on it is found on line 9 and should be placed in line 6 of your W-4. From there, you simply sign it and hand it back to your employer, completed and ready to be filed along with the worksheets. If you undergo any major life changes, you should update this form, especially if you file for divorce, have a child, or get a second job.
There are many online resources available to assist you in completing required documentation, but when in doubt, consult your tax professional.