A W-4 is an Internal Revenue Service (IRS) form entitled Employee’s Withholding Allowance Certificate. It is a form that is usually required to be completed upon being hired by a U.S. employer. Many new hires are already overwhelmed with the volume of the package of required forms and usually do not take time to properly review and understand everything they are signing.
As everyone is aware, most individuals are required to complete a personal federal income tax return Form 1040 every year. The W-4 is the mechanism that controls the amount of federal income tax withheld from your paycheck throughout the year. By filing form 1040, each person is basically performing a reconciliation of the amount of federal income tax withheld to the actual liability incurred. The resulting difference results in either an additional amount due or a refund.
The W-4 has instructions for calculating an estimate of the amount that should be withheld. The instructions may be confusing and inaccurate, especially if you are changing employers in mid-year. The only choices for status are single, married, and married but withholding at the higher single rate. The last choice is the same as single and is the most common option entered incorrectly by the employer. The data entry person sees married, but does not read the whole item, so it might be better just to check single instead. More tax is withheld with the single status than the married status.
You are allowed to claim as many exemptions as you like, beginning with zero. Although you may not claim zero on form 1040, it is a way to have more withheld. Additionally, there is a special line to enter any specific dollar amount you would like withheld in addition to your other choices. This amount is per paycheck.
There is also an exempt area if you claim to be exempt from having federal income taxes withheld. If you choose this option, you are required by the IRS to fill out a new W-4 at least yearly.
The form may be filled out again at any time you choose. The employer must honor the newly filled out form as soon as is practical.
A more accurate withholding calculation tool is offered by the IRS website. If you type IRS withholding calculator in your favorite search engine, the link will appear first. It has easy directions and is interactive. This tool will give a more accurate picture of what to have withheld if you enter correct data. Remember the old adage: garbage in, garbage out.
The IRS also offers a helpful publication if you want further direction. It is Publication 919 entitled “How Do I Adjust My Tax Withholding?”
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