IRS Form W-4, also titled Employee’s Withholding Allowance Certificate, is the form workers fill out so their employers can withhold the correct federal taxes from their pay. Many workers fill one out only when starting a new job, which can result in overpaying taxes later on. Therefore, workers should revisit their form W-4 once a year to make sure it is accurate.
What’s on the form?
Like most IRS documents, Form W-4 requests personal information like the worker’s name and social security number. Most importantly, Form W-4 allows taxpayers to identify how many allowances they can take. More allowances equals less deducted in federal taxes in each pay period. It is important to note that “allowances” on Form W-4 are different from “exemptions” on IRS Form 1040 and other tax return documents. Allowances can be taken for the worker, spouse, children, and dependent care expenses.
What’s in it for you?
As stated previously, more allowances means less federal tax withholding. Generally, workers with lower incomes and multiple children will have very limited federal tax responsibility, allowing them to keep more money from each paycheck. Some people prefer to overpay the government and then receive a larger refund during tax season. While it may be nice to get a check every April, that strategy in effect gives the government your money in a no-interest loan for up to an entire year.
Why all the worksheets?
As with most IRS publications, Form W-4 comes with several worksheets taxpayers can use for estimation purposes. The first is the Deductions and Adjustments Worksheet, where taxpayers can estimate their itemized deductions and income for the year, allowing them to determine what their withholding should be. Additionally, Form W-4 includes a Two Earners/Multiple Jobs worksheet. This allows taxpayers to determine the impact of a working spouse or an additional job on their withholding status. Again, the overall purpose is to avoid paying too little or too much in federal taxes from each paycheck.
When should the IRS Form W-4 be filled out?
Most employers will have new employees fill out form W-4 before they start work. Employers with accountants on staff can offer considerable assistance. Workers at smaller companies can use the Internal Revenue Service website ( www.irs.gov) for help in filling out Form W-4. Again, it is important to revisit the form even if you don’t change jobs. Marriage, having a baby, starting daycare, and many other life changes can result in a changed tax situation and a smaller federal tax bill.
