If you’re new to working or to paying taxes, it might seem challenging to complete a W-4 form. However, IRS Form W-4, also called the Employee’s Withholding Certificate, is truly one of the most crucial tax documents you’ll ever use. It affects how much of your money is withheld due to federal income taxes. We’ll take you step by step through the process of filling out a W-4 form, help you prevent frequent errors, and confirm you are withholding the correct tax.
What Does the W-4 Form Do?
Your W-4 tells your employer the amount of federal tax to withhold from your earnings. Your tax withholding is figured by the IRS based on your income, marriage status, dependents, and other factors listed in your form.
When planning for a new job, married life, having a child or taking on a second job, you will have to complete a W-4.
The reason for the W-4 form is:
· To help determine your federal tax withholding.
· Keeps you from getting charged with less or more taxes than you should pay.
· Keeps you from running into trouble with the Internal Revenue Service.
· Makes it easier for you to manage how much money you receive from work.
Understanding the Latest Redesigned W-4
Because of concerns about tax fairness, the IRS reformulated the W-4 in 2020 to make it simpler to complete and a better match for your tax situation. Rather than having allowances, the updated version looks at income and dependents.
Main sections in the W-4
· The first thing is to enter your personal information.
· You Have More Than One Job or Your Spouse Works
· The next step is to claim dependents.
· Adjustments
· Make your signature and write the current date.
Now we’ll talk about it step by step.
Step-by-Step Guide to Filing a W-4 for Dummies
Step 1: Enter Personal Information
This part needs to be filled out by all users and is not complicated. It contains:
· Full name
· Address
· Giving your Social Security Number
· Filing Status:
You have to pick one of these:
· Single or Married filing separately
· Married filing jointly
· Head of household
Pick the filing status that matches your situation. If in doubt, select “Single” because it results in higher withholding, which can reduce your due tax at the end of the year.
Step 2: Account for Multiple Jobs or a Working Spouse
In the next step, remember to add extra jobs or your spouse’s employment. You should use this process only if you fit the following requirements:
· Work at more than one job.
· Married, and you both have jobs.
Method to complete Step 2:
· You can use the IRS’s online tool, the Tax Withholding Estimator, to help you.
· Check the box if you and your spouse both work and earn about the same income.
· Make use of the Multiple Jobs Worksheet found on page 3 of the W-4
Using this step prevents incorrect tax from being taken out if you receive income from various sources.
Step 3: Claim your dependents
In this section, you will inform about your dependents.
You indicate here if you have children or other people depending on you.
· Multiply $2,000 by the number of qualifying children under age 17
· Multiply $500 by the number of other dependents
For example, if you have 2 kids under the age of 17 and one dependent adult living with you:
2 x $2,000 plus 1 x $500 = $4,500
Make sure to be correct in your responses. Exaggeration can result in not paying enough tax, leading to an eventual unpaid tax bill.
Step 4 (Optional): Adjust Other Specifications
It is not necessary, but it’s there if you want to better control the amount of tax held back from your salary or pension payments.
· Other income that does not come from work, like interest or dividends
· Any other deductions other than the standard deduction.
· Having an extra amount withheld from your pay.
Tip: If you are a freelancer or have a side hustle, report estimated income in 4(a) to avoid underpaying taxes.
Step 5: Sign and Date
After you’ve completed the form, all you need to do is sign and add the date. A signature is required for the form to be valid. Hand over the finalized W-4 to your employer, not to the IRS.
When to Update Your W-4
Updating your W-4 is important whenever something happens that can affect your finances or taxes, like:
· You get married or divorced.
· You become a parent by having a baby or by adoption.
· You start taking on another job
· The person you’re married to picks a new job.
· There is a big shift in your income levels.
· You’d like to have more money refunded or owed
Review the number of withholding allowances each year or after you have a major life change.
Final Thoughts
Filing a W-4 isn’t as scary as it may seem. Do things one at a time, and if something gives you trouble, either ask a tax specialist or use the IRS estimator. Try to think about the form as helping you find out if you are paying too much or too little in federal taxes.
FAQs
1. Why do you have to complete a W-4 form?
Your employer gets information from the W-4 form to decide how much tax to withhold from your salary for the US government.
2. Should I fill out a new W-4 form every single year?
You may not have to update it every year, but anytime you have a major change in your life, such as getting married, becoming a parent, or getting a new job, you should consider about revising it.
3. What happens if I make an error when filling out my W-4?
In case you take out less tax than necessary, you have to pay the rest when you file your return for the year. If you withhold more than needed, you’ll receive money from the government at tax time, but you won’t have your extra cash during the year.
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