By the time Tax Day rolls around each year in April, your W-4 form (Employee’s Withholding Allowance Certificate) is likely a distant memory. But this vital piece of paperwork was the impetus behind your employer knowing how much tax to withhold from each paycheck. And although your take-home pay may be an unhappy surprise with each tax-debited paycheck you receive, this incremental payment plan helps you avoid the sticker shock of one large income tax bill at the end of the year.
TL;DR (Too Long; Didn't Read)
IRS Form W-4 is the form that employers use to calculate the amount of withholding tax they deduct from their employees' paychecks.
What Is IRS Pay-As-You-Go Tax?
The IRS offers two ways for taxpayers to pay income tax, depending on their source of income. If you work for an employer (or if you receive income from Social Security, pension plans or certain government payments), your employer or plan administrator withholds taxes on your earnings as you receive this income during the year. If you’re self-employed, you’ll make estimated quarterly tax payments throughout the year.
If you work for an employer, the W-4 form is what you fill out when you begin employment or when you need to update the tax information contained on this form. Although the IRS does not compute the actual tax amount you owe – also called your tax liability – based on how you fill out your W-4, this form is the basis for letting your employer know how much tax to take out of each paycheck to comply with the IRS pay-as-you-go tax system.
What Is the W-4 Form?
You don’t actually submit a dollar amount for the tax you want to be withheld from each paycheck on Line 5 of your W-4. It’s the other information you provide on this form that your employer’s payroll department converts into a specific dollar amount of tax, which is deducted from your checks. As you begin a new job – sometimes even before your first day of working – your employer will have you fill out a W-4 to get the federal income tax pay-as-you-go process started. If you forget to give your employer a W-4 form, the IRS requires the employer to withhold the amount of federal income taxes from your earnings as if you were single and claiming no allowances.
W-4 Vs. W-2
Because these form numbers are so similar, it may be a little confusing to keep them straight. Even though the number “2” comes before the number “4” in the mathematical world – every kindergartner knows this – Form W-4 actually comes before Form W-2 in the tax world. So you’ll actually start with the W-4 when you begin a job, and you’ll end with the W-2 at the conclusion of the tax year.
Form W-2 (Wage and Tax Statement) is what your employer furnishes you with so you can file your income tax return. The W-2 includes a line-by-line detail of the income you earned plus the total taxes your employer withheld from your earnings over the course of an entire tax year. And the method your employer used to calculate these taxes began with the W-4 that you submitted when you started your job (or when you revised an existing W-4). After you submit a W-4 to your new employer, he has until the beginning of your first pay period that ends 30 days after you submit the form to implement the tax information.
W-4 Vs. 1099 and W-2
If you’re self-employed (or if you receive income from a source other than an employer), you will not fill out a W-4 form. But you may need to complete a Form W-9 (Request for Taxpayer Identification Number and Certification) to give to your client or other payer of certain distributions, such as a retirement account, to account for the income you receive. Clients and other payers will not withhold taxes from your earnings because they are not employers, which means you also won’t receive a W-2 from them at the end of the year. But they may be required to furnish you with a 1099 form at the end of the tax year, depending on the type and amount of income you receive from them. (A 1099 form is actually a series of forms that all begin with “1099,” so it depends on the type of income you receive as to which specific 1099 you’ll receive.)
What are W-4 Allowances?
For each withholding allowance that you note on your W-4 form, your employer will deduct less income tax from your paychecks, giving you more take-home pay. Although the goal of claiming allowances is not to increase your take-home pay, this boost in net earnings is a welcome consequence of being able to claim more allowances. It’s an IRS perk that allows you to leverage your withheld income tax against the tax bill that’s due at the end of the year instead of having to pay your entire annual tax liability at once.
Determining your W-4 allowances does not mean choosing an arbitrary number. You’ll figure the actual number of allowances to claim by considering certain factors, including your marital status, income and number of eligible dependents you have. If the prospect of a manual computation activates your math phobia reaction, don’t worry. The IRS provides step-by-step worksheets with each W-4 form that help guide you as you work through the calculations. If you didn’t receive the worksheets when your employer gave you a W-4, visit IRS.gov/forms and search for “Form W-4.”
Navigating W-4 Worksheets?
There are actually three different worksheets for computing the withholding allowances you’ll claim on your W-4. But this doesn’t mean you’ll have to complete all three worksheets – use only the one (or ones) that apply to your financial situation.
- Personal Allowances Worksheet. Start with this primary worksheet as the basis for calculating your withholding allowances. All taxpayers can enter one allowance for themselves on line A. Married taxpayers who file joint tax returns can also enter another allowance on line B. Line C is reserved for the filing status head of household, which may net you another allowance. To file as head of household, you must be an unmarried person who supports a qualifying person (or persons) by paying more than 50 percent of a household’s costs for yourself and the qualifying persons. IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information) explains the specific requirements that allow you to file under this filing status. Line D lists more filing statuses. If you have children, line E lists income amounts and the number of corresponding allowances you can claim for each qualifying child, and line F lists income amounts and the number of corresponding allowances you can claim for any qualifying dependents other than children. IRS Publication 972 explains all the eligibility requirements for a qualifying child. You may also be eligible for additional tax credits, such as the Earned Income Tax Credit. Refer to Publication 505 (Tax Withholding and Estimated Tax) for more information about qualifying children and other dependents, and review this publication's Worksheet 1-6 to determine if you can take any credits for other allowances, which you'll enter on line G. Visit IRS.gov/forms and search for these publications, which you can view, download or print.
- Deductions, Adjustments, and Additional Income Worksheet. Taxpayers who itemize their deductions, claim certain income adjustments or earn a significant amount of non-wage (unearned) income will use this worksheet. Publication 505 explains the guidelines for eligible deductions (such as qualifying home mortgage loan interest, medical expenses and charitable contributions) and unearned income (such as dividends and interest).
- Two Earners/Multiple Jobs Worksheet. The directions for Line 8 of the Personal Allowances Worksheet may point you to the Two Earners/Multiple Jobs Worksheet. If you have more than one job, or if you’re filing a joint return with your spouse and both of you work, this worksheet will help you compute your personal allowances based on total income amounts for multiple jobs (one taxpayer) or combined earnings (both spouses).
Using the IRS W-4 Calculator
If the thought of manually calculating your W-4 allowances with a sharpened pencil in hand and worksheets in front of you makes your eyes glaze over, you have an automated option. The IRS provides an online calculator tool that walks you through these calculations so you only have to type, click or tap the prompts in front of you. Access this automated feature by visiting IRS.gov and entering "withholding calculator" in the search box and click or tap for the results. When the page load, follow the prompts to use the calculator.
In fact, you may want to perform this calculation each year to make sure any recent tax legislation that may have been implemented since filing last year's tax return doesn't prompt you to modify your existing number of allowances. If you do need to make changes to your W-4 withholding allowances, simply fill out a new form and submit it to your employer. Also, if you experience a change in your financial situation or filing status, it's time to perform a "paycheck checkup" by using the IRS withholding calculator to tweak your number of allowances.
What Are W-4 Data Fields?
Form W-4 includes only 10 fillable fields. Typically, employers complete the last three lines by entering their name, your first date of employment and their Employer Identification Number. This leaves only seven lines that you’ll complete to help your employer determine the correct amount of income tax to withhold from your paychecks.
Beginning with the first three lines, which include identifying information such as your name, address, marital status and Social Security number, the W-4 also includes a fourth line with a box to check if your name on your Social Security card is different than your current name. As you move to line 5, the instructions prompt you to complete any applicable worksheets before you can enter the total number of your allowances here. You may want an additional amount of tax withheld from each paycheck, depending on your personal financial circumstances. If so, enter this dollar amount on line 6. And if you can claim an exemption from withholding, indicate this on line 7.
W-4 Exemption From Withholding
The W-4's exemption from withholding option is not the same as a personal exemption or a dependent exemption (both of which were suspended by the Tax Cuts and Jobs Act for the tax years 2018 through 2025). Whereas personal and dependent exemptions represented actual dollar amounts that reduced your tax liability, exemption from withholding is simply a designation that means you're eligible to have no federal taxes withheld from your income.
To meet the requirement for this withholding exemption in 2018, you must have had no tax liability in 2017, which made you eligible for a full refund of any federal income tax that may have been withheld. You must also expect a full refund in 2018 because of zero anticipated tax liability. If you meet both these requirements, check the box on line 7.
- IRS: Form W-4
- IRS: Pay as You Go So You Won't Owe - a Guide to Withholding Estimated Taxes, and Ways to Avoid the Estimated Tax Penalty
- IRS: Topic Number 753 - Form W-4 Employee's Withholding Allowance Certificate
- IRS: Publication 17
- IRS: About Publication 501
- IRS: Publication 972
- IRS: Publication 505
- H&R Block: The New Standard Deduction and Removal of Exemptions - What Does it Mean to You?
- IRS: IRS Withholding Calculator