Understanding an IRS W-4 Form

The Employee’s Withholding Allowance Certificate, also called Form W-4, is a tax form that employees fill out to set the amount of federal income tax that’s deducted from their earnings. The information entered into a W-4 form will directly influence the earnings received in each paycheck.

The W-4 Form

Employers remit taxes to the Internal Revenue Service on behalf of their employees. The taxes are withheld at rates determined by the information entered into workers’ W-4 forms. At the end of the calendar year, employers send employees W-2 forms, which show the amount of taxes that was withheld for the previous tax year. Employees submit a W-4 when starting a new job or when something happens that influences their filing status, such as getting married or the birth of a child.

Determining Allowances

Part of completing the W-4 form is determining the number of allowances you can claim. The Internal Revenue Service provides a worksheet for employees to use to figure out their personal allowances. The more allowances you claim, the less money will be taken out of your paychecks. Employees don’t have to use the worksheet to calculate their allowances, but it’s helpful for anyone who doesn’t fully understand tax allowances. The worksheet has lines labeled A through G, and employees enter a number on each line depending on whether the criteria apply to them. For example, on Line A, you would enter a “1” if you are single and have one job. Those who file as head of household or have dependents will enter the appropriate figures on other applicable lines. After reading each allowance description and entering a “1” or “0” on each line, you will add the allowances and enter the total on Line H. This total then transfers to Box 5 of the W-4.

Deductions and Adjustments

The W-4 worksheet also has a section for deductions and adjustments. Using this section involves estimating adjustments and adding deductions, such as charitable donations. Read the instructions carefully, since newer tax guidelines have eliminated some adjustments that many people were accustomed to claiming on their taxes. The Internal Revenue Service provides a withholding calculator to help taxpayers calculate itemized deductions.

Multiple Earners and Multiple-Job Taxpayers

Married people who both work and single people who have more than one job should use the two earners/multiple jobs worksheet. Use the number from Line H on the personal allowances worksheet on Line 1 of the new worksheet (unless deductions and allowances are present). Use the tables at the bottom of the worksheet to fill in lines 2 through 9.

Completing the W-4 Form

After using all applicable worksheets, you are ready to complete the W-4 form. Complete lines 1 through 4 with your personal information. Enter your total allowances in Box 5. If you have additional money you want withheld from your paychecks, enter this amount on Line 6. Some people decide to have more money withheld to make sure they’re not having too little withheld, which could result in a big tax bill as well as penalties and/or interest for underpayment. If you have a total from the two earners/multiple jobs worksheet, enter this number on Line 6. If you had no tax liability for the previous tax year and you expect to have no tax liability for the current year, enter “exempt” on Line 7. While this exempts you from federal income taxes, you will still need to pay Social Security and Medicare taxes. At the bottom of the form, you need to attest to the truthfulness of the information you’ve entered and sign your name.