Tax forms can be difficult to fully comprehend, even for the most seasoned business owners. If you want to understand your taxes better and learn how to fill out a federal W-4, keep reading for a comprehensive explanation.
What is a Form W-4?
A W-4 is a tax form that an employee completes and returns to their employer to indicate how much tax to hold back (or withhold) from each paycheck. The official title of a W-4 is Employee’s Withholding Certificate, though you might recognize it as a federal withholding form. Employers use the W-4 to help determine payroll taxes and to withhold taxes for both the IRS and state (if income taxes are applicable) on behalf of their workers.
For most taxpayers, the key to filling out your W-4 is choosing the right 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, if you choose to withhold more than truly necessary, you’ll be living on slightly less during the tax year.
You need to pay your income tax on earnings when you earn it, which is why it’s imperative to fill out your W-4 properly when you go through a life change that impacts your taxes—for example, getting a new job or getting married.
Key components of Form W-4
Although tax forms can look daunting, Form W-4 includes some straightforward components that you should already have available. These elements include your:
- Name and mailing address
- Social Security number (SSN)
- Filing status or marital status—single, married filing jointly, head of household, qualifying widower, or married filing separately
- Total earnings
You’ll also need to provide information such as any additional amount of money you want to be withheld from your paycheck or if you’re exempt from making tax payments.
Although you only need to fill out the first page of the W-4, there are other pages included with the form to help you determine your calculations:
- Instruction sheet: This sheet provides both general instructions regarding the form and specific instructions for each step.
- Multiple jobs worksheet: This applies if you have more than one job to calculate the total extra tax for all jobs.
- Deductions 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.
What to know when filing a Form W-4
We’ve covered how to fill out a W-4 above, but it’s perfectly natural to still have some questions about the intricacies of this particular tax form. Keep reading to have some of the most common questions about the W-4 answered.
What is Form W-4 used for?
Simply put, tax Form W-4 informs employers how much to withhold from your paychecks for federal taxes.
Where do I complete a Form W-4?
A W-4 is typically provided to you when you start new employment by the human resources team during your onboarding process. They should also be able to provide you with a new form if you need to make changes throughout your employment.
When should I fill out a new W-4?
There are a few different reasons why you may want to fill out a new W-4 tax form. Here’s a list of questions you can use to determine if you should change your withholdings on your W-4 form:
- 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 affect the amount of taxes you owe. In some cases, you’ll owe additional taxes, and in other cases, you might owe less.
What changed on the new W-4?
Previously, employees could elect to claim allowances to lower the amount withheld from their wages. Essentially, the more allowances an employee claimed, the less money was withheld, making their regular paychecks higher. However, this sometimes created issues down the road, causing the employee to pay additional taxes at the end of the tax year.
In 2020, a new W-4 form was introduced to alleviate any confusion and underpaying that the previous form provided. This change was due to the 2017 Tax Cuts and Jobs Act. On the new form, employees who want to lower their tax withholding must claim dependents or use a deductions worksheet.
Do W-4 forms need to be completed yearly?
The W-4 does not need to be filled out yearly. However, if you have a change in circumstances that affects how much money should be withheld from your paycheck, completing a new W-4 is advised.
Do I claim 0 or 1 on my W-4?
A frequently asked question about the W-4 is if you should claim 0 or 1. The difference between claiming 0 or 1 determines whether you’ll get more money in each paycheck or in a larger lump sum during tax season. Claiming 0 will take out more taxes per paycheck, and claiming 1 will take out less taxes per paycheck, giving you more money each month rather than at the end of tax season.
How to fill out a W-4: Step by step
A W-4 form can seem intimidating at first due to the vast amount of information that’s included. We’ve listed out step-by-step instructions below to help you navigate through the form.
1: Personal information
This is where you’ll input your full name, address, and Social Security number. To be most accurate, make sure this matches the information that you’ve provided your human resources department so that there’s no filing confusion.
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 jointly, you’ll have three options to choose from. These are:
- Using the estimator at www.irs.gov/W4App for most accurate withholding
- Using the Multiple Jobs Worksheet
- Checking the indicated box if there are only two jobs total
This only applies if you personally hold more than one job, or if you are married filing jointly and have a spouse who also works.
3: Claim any dependents
This is where you’ll claim dependents per the instructions listed on the sheet. Keep in mind that this is only applicable if your total income will be $200,000 or less ($400,000 or less if married filing jointly).
4: Other adjustments
In this section of the form, the IRS asks if you want to withhold additional income from your paycheck. This can be due to other income sources not from jobs, deductions, and general extra withholding. Remember that this section is optional.
- If you want to pay the least amount of taxes throughout the year, do not elect to withhold additional income. Keep in mind, however, depending on your situation, you might need to pay additional taxes at the end of the tax season.
- If you want to play it safer and reduce the risk of having to pay an unexpected tax bill at the end of the tax year, do elect to have extra income withheld. This will reduce your take-home pay per paycheck but will provide you with an extra cushion for the end of tax season.
5: Sign your form
This is the last step you’ll need to take. Your signature tells the IRS that you’ve filled out your W-4 as thoroughly and accurately as possible.
W-4s: The key to your taxes
W-4s are an important piece of the tax puzzle. Tax forms, including learning how to fill out a W-4, can seem overwhelming at first. But by staying organized, knowledgeable, and using this article as a guide, you can ensure that your taxes won’t be as daunting in 2022.