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Most people cross paths with a W-4 form, but not everybody realizes how much power Form W-4 has over their tax bill. Here's what the form is used for, how to fill it out and how it can make your tax life better.
A W-4 form, formally titled "Employee's Withholding Certificate," is an IRS form employees use to tell employers how much tax to withhold from each paycheck. Employers use the W-4 to calculate certain payroll taxes and remit the taxes to the IRS and the state on behalf of employees.
You do not have to fill out the new W-4 form if you already have one on file with your employer. You also don't have to fill out a new W-4 every year. If you start a new job or want to adjust your withholdings at your existing job, though, you'll likely need to fill out the new W-4. Either way, it's a great excuse to review your withholdings.
In the past, employees could claim allowances on their W-4 to lower the amount of federal income tax withheld from their wages. The more withholding allowances an employee claimed, the less their employer would withhold from their paychecks. However, the 2017 Tax Cuts and Jobs Act overhauled a lot of tax rules, including doing away with personal exemptions. That prompted the IRS to change the W-4 form.
The new W-4, introduced in 2020, still asks for basic personal information but no longer asks for a number of allowances. Now, employees who want to lower their tax withholding must claim dependents or use a deductions worksheet.
Form W-4 is available . Here's how to complete the steps that apply to your situation.
Enter your name, address, Social Security number and tax-filing status.
If you have more than one job, or you file jointly and your spouse works, follow the instructions below to get more accurate withholding.
If you’re single and have multiple jobs, or you’re married and file jointly and both of you work:
If you don’t want to reveal to your employer that you have a second job, or that you get income from other non-job sources, you have a few options:
If your total income is under $200,000 (or $400,000 if filing jointly), you can enter how many kids and dependents you have and multiply them by the credit amount. (See the rules about the and for )
If you want extra tax withheld or expect to claim deductions other than the when you do your taxes, you can note that.
Once completed, give the form to your employer's human resources or payroll team.
Here are two general strategies:
And here are some steps you might take toward a specific outcome:
If you want more taxes taken out of your paychecks, perhaps leading to a tax refund when you file your annual return, here's how you might adjust your W-4.
If you want less in taxes taken out of your paychecks, perhaps leading to having to pay a tax bill when you file your annual return, here's how you might adjust your W-4.
If your objective is to engineer your paycheck withholdings so that you end up with a $0 tax bill when you file your annual return, then the accuracy of your W-4 is crucial.
Being exempt means your employer won’t withhold federal income tax from your pay. (Social Security and Medicare taxes will still come out of your check, though.) Generally, the only way you can be exempt from withholding is if two things are true:
If you are exempt from withholding, write “exempt” in the space below step 4(c). You still need to complete steps 1 and 5. Also, you’ll need to submit a new W-4 every year if you plan to keep claiming .
You can change your W-4 at any time, but if any of these things happen to you during the year you might especially want to update your W-4 so your withholdings reflect your tax life:
Tinkering is OK. You're allowed to give your employer a new W-4 at any time. That means you can fill out a W-4, give it to your employer and then check your next paycheck to see how much money was withheld. Then you can start estimating how much you'll have taken out of your paychecks for the full year. If it doesn't seem like it'll be enough to cover your whole tax bill, or if it seems like it'll end up being way too much, you can submit another W-4 and adjust.
If you want an extra set amount withheld from each paycheck to cover taxes on freelance income or other income, you can enter it on lines 4(a) and 4(c) of Form W-4.