About the W-4 Form
The Employee Withholding Allowance Certificate, or commonly referred to as W-4 form, determines the amount of money that needs to be withheld each paycheck. This amount is withheld and paid by the employer to the IRS.
The form should be filled out by the employee consciously, due to its personal questions. W-4 forms are one step towards financial independence if done correctly. They are meant to shrink the amount of taxes due during the Spring for your convenience.
When should it be filled?
It is recommended that you fill a new W-4 each year or at least every time there are changes in your personal or financial life. Changes can include marriage, new job, higher pay raise, pay deduction or kids for example.
The W-4 Worksheets
The form will come with three worksheets that will help guide you with the filling process. You do not have to use all the worksheets. It all comes down to your personal tax situation.
The three worksheets are the Personal Allowances Worksheet, the Deductions and Adjustments Worksheet, and the Two-Earners/Multiple Jobs Worksheet.
The first is for everyone. The second worksheet is only for those with plenty of deductions. The third sheet is for married people or those with more than one job.
The worksheets are just a guide. You can claim more or fewer allowances than what resulted from the worksheet calculations. The trick is finding the correct balance for your particular situation.
Tips for filing W-4
- Be honest and answer truthfully;
- Do not be afraid to tinker with your withholdings until finding balance;
- A big refund is not always the best;
- If you had to pay last year, withhold more to lower the possibilities of penalties;
- Use the worksheets and/or professional tax consultation;
- Can be done electronically or via paper any time of the year;
- If you fill out more than one W-4, do not claim the maximum allowance on all forms;
- Fill a new W-4 if you only worked part of the year.
What you should know beforehand
There are certain things you should consider before filling out a W-4 form, such as your financial goals and stability. Consulting with a tax professional for complicated situations is a wise idea.Determine if you can be exempt from withholding before filing a W-4. It is also important to get to know the official IRS withholding tables for better accuracy and planning.
Did you know?
- The IRS offers an online calculator to help you determine the amount of taxes that should be withheld.
- The more allowances you claim, the less money that will be subtracted.
- W-4 exemption exists for those who had no tax liability and suspect the same this year.
- Withholding more money does not incur interest, but withholding less can result in penalties.
- No submission of W-4 results in withholding at the largest rate possible.
- W-4 only determines federal income tax withheld, not SS or Medicare taxes.
- A withholding allowance is not the same as a dependency exemption.
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