W-4 Form Explained

by Grace Ferguson ; Updated December 08, 2017
The IRS withholding calculator can help you complete your W-4.

Your federal income tax withholding depends on the Internal Revenue Service tax tables and your Form W-4. Both are needed to accurately compute your withholding amount. You write your number of allowances and marital status on the W-4. Then your employer matches that information with the relevant tax table to determine withholding. W-4 form allowances explained simply are exemptions that employees can have their employer deduct from their paycheck to go towards income tax obligations. Fewer allowances mean more income tax being withheld and a smaller paycheck, while more allowances equate to less income tax withheld from each paycheck, but you could owe the IRS come filing time. Filers are allowed to claim themselves, their spouse and each qualifying dependent as allowances.

Purpose of W-4

Form W-4 is developed by the IRS, which administrates federal taxes. Because federal income tax withholding is based on employees’ personal and financial situations, employees must fill out their own W-4. For example, where you might be single and qualify for two allowances, another employee may be married and eligible for three allowances. Without the W-4, it is difficult for an employer to calculate the appropriate withholding.

When to Fill Out the Form

Employers are supposed to give all new hires a W-4 to complete. The employee completes the form and submits it to his employer in time for his first payroll processing. The IRS has instructed employers to withhold at the highest tax bracket of single with zero allowances if an employee fails to submit a W-4. Employees should also complete a W-4 when their personal or financial situation has changed, such as they got married or gained a dependent.

Completing the Form

Each allowance that you claim on the W-4 corresponds to an amount that lowers your taxable earnings and increases your take-home pay. When completing the form, claim your personal allowances from lines A through G and put the total on line H. Retain this section for your records. Fill out the withholding allowance certificate at the bottom of page 1, including your marital status on line 3 and allowances on line 5. Give this section to your employer. If you have multiple jobs or plan to itemize your deductions or claim credits or income adjustments on your tax return, complete page 2.

Importance of Providing Accurate Data

If you claim more allowances than you’re entitled to, the IRS may send your employer a lock-in letter to change the amount. The lock-in letter stands, regardless of what your W-4 shows. Your W-4 is not valid if it’s not properly completed. For example, if you claim "exempt" on line 7 of the withholding allowance certificate plus allowances on line 5, the form is invalid because you’re either excluded from withholding, in which case you would claim exempt, or you’re subject to withholding, in which case you would claim allowances. Employees who submit false a W-4 can face a $500 penalty from the IRS.

Impact on Tax Return

Your W-4 is strictly for payroll withholding purposes. It is not used to determine your actual liability at tax time. Still, your withholding amount directly influences whether you will get a refund or owe taxes. You can lower your refund or balance due by accurately completing your W-4. You may also modify your refund or tax bill amount by adjusting the number of allowances within reason. For example, reducing your total allowances results in more taxes withheld, less taxes owed and likely a refund that can be applied to other expenses.

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.

Photo Credits

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