With only 10 fields and taking up less than a half page, the W-4 form might seem inconsequential, but it's really a useful tax planning tool. You use the form the tell your employer how much money to withhold from your pay in income tax. What you claim can mean the difference in getting a big fat refund, having more money in your pocket throughout the year or owing Uncle Sam. If you're single, with only one job and no dependents, your W-4 if fairly straightforward. If you have a house, children, a side hustle--or you itemize deductions on your tax return--it's a bit more complicated. Consult a tax professional or your human resources office for help filling out your W-4 form. In addition, take advantage of the W-4 calculators offered online by the IRS and other financial organizations.
What's a W-4 For?
IRS Form W-4, the Employee's Withholding Allowance Certificate, allows you to list the number of allowances you wish to claim. Your employer uses that number to determine how much income tax to withhold from your paychecks. Though there are other considerations, allowances basically represent the number of dependents you have. The more allowances you claim, the less tax is withheld from your pay.
If you have several children, a house and multiple other deductions on your tax return, you can adjust your allowances to account for these circumstances. For example, your other deductions may reduce your tax bill so much that you don't need your job to withhold so much in taxes. On other hand, if you have two jobs, consider whether you are having enough tax withheld. The greater income could increase your tax bill, but if you have the same number of allowances at both jobs, you could wind up owing. When a W-4 is done right and your circumstances don't change, you should neither owe a lot in taxes nor get a lot of money back. Remember a tax refund isn't a windfall; it's the government returning your money after keeping it for a year without paying you interest.
If you are single with no dependents, you could simply use the personal allowance worksheet that is usually above the W-4 form. You would enter "1" to claim yourself and another "1" if you are single and have only one job, leaving you with 2 personal allowances to enter on line 5 of the W-4 form. If you have other circumstances and want more taxes taken out, you are free to enter "0" on the line. Included with the official IRS W-4 form is a Deductions and Adjustments Worksheet and Two-Earners/Multiple Jobs Worksheet to help you more precisely figure out how many allowances you can take. According to Bankrate.com, in 2011, "each allowance you claim is equal to $3,700 of income that you expect to have in deductions when you file your annual tax return."
Many people file their W-4 with their employer and forget about them, but you are entitled to make changes to the W-4 when needed. TurboTax advises reviewing your withholding allowances regularly. Getting a huge refund or a nasty tax bill indicates your W-4 may need to be tweaked. In addition, if you get married, have a child, buy a house or experience other tax-saving life changes, consider revising your W-4.
- Bankrate: Form W-4--The Start of Your Working Life
- "Kiplinger"; How to Fill Out a W-4 Form; Cameron Huddleston; May 17, 2011
- IRS: Form W-4--Employee's Withholding Allowance Certificate
- Bankrate: Withholding: Working Through the W-4 Worksheet
- TurboTax: Form W-4 and Your Take-Home Pay
- Internal Revenue Service. "About Form W-4, Employee's Withholding Certificate." Accessed Feb. 27, 2020.
- Internal Revenue Service. "2020 Form W-4 Revised for Recent Law Changing the Medical Expense Deduction Floor to 7.5 Percent for 2020." Accessed Feb. 27, 2020.
Angela Ogunjimi has been a prize-winning writer and editor since 1994. She was a general assignment reporter at two newspapers and a business writer at two magazines. She writes on nutrition, obesity, diabetes and weight control for a project of the National Institutes of Health. Ogunjimi holds a master's degree in sociology from George Washington University and a bachelor's in journalism from New York University.