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Most employees come across a W-4 form on the first day of a new job. So what is a W-4 form? How does it affect your taxes? It’s important to know the right tax information so you can fill out your tax forms correctly.
In this guide, we will explain in detail what a W-4 form is and how to fill a W-4 form. So continue reading.
What Is a W-4 Form?
Also known as an Employee’s Withholding Allowance, a W-4 form is a tax form for employees that allows them to paint a better picture of their tax situation for their employer. It is one of the first forms that employees need to fill out on the first day of a new job.
A W-4 form includes information like the employee’s marital status, the number of dependents, and similar factors. It indicates the amount of federal income tax that your employer should withhold from your paychecks.
It is important to accurately fill out your W-4 form to avoid overpaying or underpaying your taxes.
For instance, if you withhold a lot of taxes, you will have a very large refund. And if you withhold very little taxes, you may get an underpayment penalty and end up with a balance due.
How to Fill a W-4 Form
Follow the steps below to accurately fill out your W-4 form:
Step 1: Fill Out Your Personal Information
The first step involves entering your personal information. This includes your full name, social security number, address, and tax filing status. The tax filing status options include single, married filing jointly, married filing separately, head of household, or qualifying widow(er).
Here, you have the option to stop and let your employer withhold the taxes by default. However, it is not the ideal way. You will have to follow one or more extra steps to get the accurate balance between your refund and your paycheck.
Step 2: Record Both Yours and Your Spouse’s Jobs
The new W-4 forms require you to fill out both your and your spouse’s combined income. This also includes any self-employment income you or your spouse receives. If you fail to do so, you will end up setting your withholding tax at a very low rate.
To fill out this section accurately, you have three options:
⦁ Select the checkbox to let your employer withhold taxes at a default rate. If both of you have similar income from all the jobs, this is the best option. Although this is the easiest option, it may result in smaller paychecks throughout the year and a refund check.
⦁ Find out a specific amount that your employer must withhold for every pay period by using an online calculator. This option is ideal if your income comes from self-employment and this option allows for both income and self-employment taxes.
⦁ If you and your spouse have multiple jobs (either both of you work or you have more than one income stream), then use a worksheet that comes with the W-4 form. It is ideal if you don’t want to disclose your other income streams to your employer.
Step 3: Claim Your Child-Related Tax Credits
Only you or your spouse must allow for these tax credits through withholding. It is best to use the W-4 form of the highest-paying job to allow for child-related tax credits.
If both of you allow for these tax credits on the form, you won’t be left with enough withholding and you’ll end up paying an extra amount to the IRS.
You will be required to specify the number of qualifying children under age 17 and any other dependents you may have in step 3 of the W-4 form. Filling out this step would help your employer determine how much withholding to decrease.
You can also mention any other tax credits in this step and specify if you want the amount to be deducted from your paychecks.
Step 4: Account for Other Income Streams and Deductions
n this step, you can mention any other income streams, extra withholding amounts that your employer should take, and any other deductions that you are eligible for.
Here’s what you should account for in this step:
⦁ Other income amounts will increase your withholding.
⦁ Extra withholding amounts will increase your withholding.
⦁ Deductions will decrease your withholding.
However, do note that you should only allow for deductions or other income amounts on one of your W-4 forms. Only one spouse must do it.
Instead of claiming the standard deduction to itemize deductions, use the deductions worksheet with your W-4 form so your employer can adjust a specific amount of withholding every pay period.
You can also claim an exemption from withholding on the W4 form.
If you didn’t owe any tax the previous year and you don’t think you’ll owe any tax this year either, you are exempt from withholding.
You can claim your exemption by writing “Exempt” in the blank space under Step 4(c).
Step 5: Sign Your Form
Now that you have filled out your W-4 form, sign and date it before handing it off to your employer.
Conclusion
We hope this guide answers the question “What is a W-4 form” and how you can fill it out. A W-4 form allows employees to declare their tax-related information to aid their employers in withholding taxes. It is an important form that most employees fill out on the first day of their new job.
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