If you work for an employer, your boss must calculate and withhold payroll taxes when you are paid. Employers rely on the information you furnish on the W-4 form you fill out to claim withholding allowances for yourself and your family. Getting the right number of withholding allowances for yourself and your dependents means the correct amount of tax will be withheld so you don’t get slammed with a fat bill at tax time.
A dependent on the W-4 form refers to your children (under 24 for students, otherwise under 19) or other qualifying relatives for whom you provide at least 50 percent of support. These individuals must have only limited income to qualify.
The W-4 Worksheet
Fill out the Personal Allowance Worksheet that comes with the W-4 form to determine how many withholding allowances to claim. Each allowance excludes a dollar amount from income tax withholding. Suppose you have a family of three, which includes yourself, your spouse and one child. Enter 1 on line A. Enter 1 on line D when you expect the combined wages from any second job and any job your spouse has to be less than $1,500 for the year. On line B, enter 1 if you are planning on filing jointly with your spouse. Line C will be used if you are planning on filing for Head of Household status, which typically means you are unmarried but have a qualifying dependent or child. On line D, you can also enter 1 if you are married and filing jointly but your spouse does not currently have a job.
Dependents and the Worksheet
You're probably wondering, "What is a dependent?" when filling in the amount of dependents you have on line F. Dependent children qualify and must be under age 19 at year’s end or under age 24 if they're students. There’s no age limit if a child is completely disabled. W-4 dependent children have to be related to you in some way. They have to be your biological child, stepchild, adopted child, sibling or foster child, and they must be either a citizen of the United States or live in the U.S., Mexico or Canada. A dependent child may furnish no more than 50 percent of her own support and must live with you for more than half the year.
Certain direct adult relatives may also qualify as W-4 dependents if they have limited income and you provide more than half of their support. These adult relatives include parents, siblings, half-siblings, step-siblings, in-laws, grandparents and descendants of your children or of your siblings. Foster parents and more distant relatives like cousins do not qualify. Also, any direct relatives you have through marriage remain eligible dependents, even after you divorce your spouse or the spouse passes away.
You can use Line E to get the benefit of the Child and Dependent Care Credit and Child Tax Credit during the year instead of waiting to file your taxes. On line F, you can claim credits for other dependents you may have. If your income is less than $103,351 and you are married/filing jointly, you can enter a 1 for each eligible dependent.
Completing the W-4
Add lines A through G together and enter the number on line H of the worksheet. To fill out the W-4 form, enter your personal information filing status on lines 1 through 4. On line 5, enter the number of withholding allowances from line H of the worksheet.
When you have non-wage income, such as capital gains or interest, you can ask your employer to withhold extra tax by entering a dollar amount on line 6 of the "Deductions, Adjustments and Additional Income" Worksheet. Line 7 is used only for low-income workers who don’t expect to owe any income tax for the year. Sometimes your life situation changes because of major events like births or marriage. The Internal Revenue Service says to submit an updated W-4 to your employer when an event changes the number of withholding allowances you should claim.
W-4 Errors and Refunds
Don't worry if you end up making an error on your W-4 form that results in too much tax being withheld for the year. You will be eligible to get that money back in a refund when you file your taxes.