If you’ve recently gotten a new job, you’ve likely come across an IRS Form W-4. An IRS W-4 is one of many tax forms that helps the government assess tax liabilities to taxpayers. But not too many people realize the utility and power of this particular tax form.
A W-4 can help you find the balance between getting a tax return and owing a large tax bill to Uncle Sam at the end of the year. For most taxpayers, the key to doing your taxes is choosing the withholding amount that’s about even with the taxes you actually owe or withholding slightly more of your paycheck so you can get a moderate tax refund. Of course, this means that you’d be living on slightly less during the tax year.
If you want to understand your taxes better and learn how to properly fill out and use a W-4 form, keep reading for a comprehensive explanation. Alternatively, you can jump directly to the section that answers your question below.
- What is a Form W-4?
- Key components of Form W-4
- When should you fill out a new W-4?
- Changes to Form W-4 for 2021
- How to fill out Form W-4
So, what is an IRS Form W-4 anyway, besides a letter and a number? The official title of a W-4 is “Employee’s Withholding Certificate,” and it tells employers how much tax to hold back (or withhold) from each paycheck for federal taxes. Employers use the W-4 to help determine payroll taxes and to withhold taxes for both the Internal Revenue Service (IRS) and state (if income taxes are applicable) on behalf of its workers.
You need to pay your income tax on earnings when you earn it, which is why it’s imperative to fill out your W4 properly when you go through a life change that impacts your taxes (for example, getting a second job or getting married).
If you have no federal income tax liability in 2020, you may claim exemption from withholding for 2021. If your income is under the filing threshold for your filing status, you also don’t need to file a tax return.
A Form W-4 includes some key components to help you decide how much to withhold from your paycheck. The W-4 includes the elements below:
- Name and mailing address
- Social Security number (SSN)
- Filing status or marital status—single, married, head of household, qualifying widower, or married filing separately
- Any additional amount of money you want withheld from your paycheck
- Whether you’re exempt from making tax payments
Although you only need to fill out the first page of the IRS Form W-4, there are other pages included with the form to help you determine your calculations:
- Deductions, Adjustments, and Additional Income Worksheet: This helps determine if you meet income requirements for claiming things like the child tax credit and credit for other dependents. This is also where you’d note additional income and any itemized deductions.
- Two-Earners or Multiple Jobs Worksheet: This applies if you have more than one job or if you’re filing jointly with a spouse who has a job.
There are a few different reasons why you may want to fill out a new W-4 form. Here’s a list of questions you can use to determine if you should go back to your W-4 form and change your withholdings.
- Did you have children or new dependents?
- Did you get a new job?
- Did you get a significant raise or pay cut?
- Do you or your spouse have a second job or form of income?
- Are you married? If yes, does your spouse work as well?
- Did you get divorced?
- Did you buy a house?
- Do you freelance on the side?
- Is there a chance that you won’t use the standard deduction?
- Did you get a big refund or owe a large amount of taxes last year?
If you answered yes to any of the questions above, it’s a good idea to revisit your W-4 and figure out your new income tax withholdings. All of these types of life changes can change the amount of tax you owe. In some cases, you’ll owe additional tax, and in other cases, you might owe less.
With the passage of the Tax Cuts and Jobs Act in 2017, new changes to employee withholding were enacted. These changes still impact taxes today and may affect your taxes in 2021 as well.
The main change is that there are no longer any personal allowances (known as withholding allowances) because of the removal of personal exemptions.
How to fill out Form W-4 step by step
Below, we’ll walk you through how to fill out your W-4, step by step.
Step 1: Fill out your personal information
This is where you’ll input your name, address, and Social Security number. If you’re a single filer, all you need to do is sign and date the form. Other taxpayers will need to complete additional steps.
Step 3: Claim any dependents
If you have any dependents, this is where you’ll claim them. Pay attention to definitions of dependents by checking out the IRS Publication 972.
Step 4: Other adjustments
In this section of the form, the IRS asks if you want to withhold additional income from your paycheck. It’s important to consider whether the information means you’ll get a large tax bill. When might you owe more than you expect? If you receive a large amount of earnings reported on a Form 1099, you’ll need to pay taxes and account for those taxes on your W-4.
If you have other income (not from a job), you’ll place the additional earnings in the space marked (a).
There’s also a line (b) for deductions other than the standard deduction, like itemized deductions in the form of charitable donations or mortgage interest.
And (c) is where you can add any extra withholding amount.
Step 2: Multiple jobs or spouse also works
If you have more than one job or you have a working spouse and you’ll be filing married filing jointly, you’ll have three choices to make, as outlined below (a–c).
Step 5: Sign your form
This is the last step that you’ll need to take. Your signature tells the IRS that you’ve filled out your W-4 as thoroughly and accurately as possible.
- Use the IRS withholding estimator or provided worksheets to determine more accurate withholding amounts.
- Know your filing status (single, married, or head of household).
- Know how much you’ll claim in tax deductions or credits like the child tax credit.
- Get comfortable changing your W-4. You might need to change your W-4 information midyear if you unexpectedly start freelancing or have another life change that impacts your taxes.
IRS tax withholding estimator
If you don’t want to go through all the work to calculate your taxes and withholdings manually, the IRS also has a tax withholding estimator that can do some of the work on your behalf. You can find this tool on the IRS.gov website, along with other resources that can help you complete your taxes.
Conclusion: Filing your W-4
Although taxes can be tricky, you can use software like QuickBooks to keep track of your expenses during the year. Your tax situation is unique to you, but no matter your circumstances or the tax year you’re filing in, it’s important to stay organized and knowledgeable. By using this article as a guide and completing the steps outlined, you can ensure that your taxes aren’t as daunting in 2021.
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