What is W4?

Most individuals come into contact with what is W-4 form, but not everyone recognizes how significant a role Form W-4 plays in their tax bill. Here's why you should use the form, fill it out, and how it may help you with your taxes.

Every person unfamiliar with tax and its technicalities might wonder what is w4. Employees fill out Form W-4 with the Internal Revenue Service (IRS) to inform their employer about their tax condition. The W-4 form notifies an employer how much tax to take from an employee’s paycheck depending on their marital status, the number of allowances and dependents they have, and other criteria. An Employee’s Withholding Allowance Certificate (W-4) is another name for the W-4.

So the answer to the question, what is w4 is clear that W-4 Form is an IRS form that you fill out for your employer to calculate how much should be withheld from your paycheck and forwarded to the IRS for federal income taxes. Filling out your W-4 correctly may help you avoid paying too much in taxes during the year or owing a huge debt at tax time.

Many taxpayers submit a W-4 tax form on the first day of a new employee, and they wonder, “what is a w-4 form?” You’re not alone if this describes you. Many individuals are confused about what a W-4 form is and how it impacts their taxes. Perhaps you make a guess as to how to fill it out, or perhaps a buddy can help.

Table of Contents

How to fill out a W4

If you’re changing employment, you’ll quickly discover that Form W-4, which every employee must complete to establish the amount of taxes deducted from each paycheck, has changed. The Internal Revenue Service (IRS) claims it updated the form to improve the payroll withholding system’s openness and accuracy.

Fortunately, you don’t have to fill out a new Form W-4 if you aren’t transferring employment or have no need to. Your employer is free to continue using the one you have on file.

Personal exemptions and dependent exemptions, which are no longer applicable, are no longer asked for on the new Form W-4. However, it does inquire as to how many dependents you may claim. It also asks if you want to increase or decrease your withholding amount based on circumstances like second employment or itemized deduction eligibility.

The updated W-4 form

In 2020, Form W-4 was completely revamped, with fewer lines to fill out. The amount of tax withheld from your paycheck is determined by how you fill out Form W-4, the Employee’s Withholding Certificate. Your company, together with your name and Social Security number, sends the money it withholds from your paycheck to the IRS.

When you submit your tax return for the year, your withholding goes toward paying your yearly income tax obligation. That’s why the W-4 requires personal information like your name, address, and Social Security number.

What has changed on W-4?

The ability to claim personal allowances has been removed from the latest edition of Form W-4.

A Personal Allowances Worksheet was formerly included with a W-4 to assist you in determining how many allowances to claim. If you claim more allowances, your company would deduct less from your salary; if you claimed fewer allowances, your employer would withhold more.

Allowances were formerly only loosely linked to personal and dependent exemptions claimed on your tax return. As a result of the Tax Cuts and Jobs Act (TCJA), the standard deduction was doubled, while personal and dependent exemptions were repealed. 3

Step 3 of the new form requires you to list the number of dependents in your home.

A summary of the updated W-4’s five steps

There are five phases in the new W-4. For all workers, just steps 1 and 5 are required:

Step 1: Enter your basic personal information, such as your name, address, and whether you want to file your taxes as a single person, married person, or head of household.

Step 2: People whose circumstances suggest that they should withhold more or less than the usual amount should complete this section. The income of a spouse, second employment, or freelancing income are all things that can be noted here.

Step 3: In this part, you’ll list the number of children or any dependents you have.

Step 4: In this optional area, you can list additional reasons for withholding more or less money from your salary. Passive income from investments, for example, can boost your annual income as well as the amount of tax you owe. It’s possible that itemizing deductions will reduce the amount of taxes you owe. These might be reasons to modify your W-4 withholding.

Step 5: Sign the document.

Why should you check your W-4 form?

It was the first significant update of the W-4 form since the TCJA was passed into law in December 2017 when the new W-4 was introduced for the 2020 tax year. Employee withholding was drastically altered as a result of this regulation. 5

Indeed, the W-4 overhaul and tax adjustments since the TCJA may be a cause to revisit the W-4 you filled out when you first started working for your company to determine whether any changes are required.

If you learned that you owed a lot of money because you underpaid over the year or were owed a lot of money because you overpaid, you should modify your W-4 depending on your current tax returns.

It’s also a good idea to update your W-4 if a major life event occurs, like the birth of a kid, a marriage or divorce, or the start of new freelancing employment.

How to fill out the new W-4 form

Filling out a W-4 is simple if you are single or married to a spouse who does not work, you have no dependents, you only have one job, and you aren’t claiming any tax credits or deductions (other than the standard deduction). Simply fill in your name, address, Social Security number, and filing status before signing and dating the form.

If you have dependents, a spouse with income, or plan to claim any tax credits or deductions, your tax position will be more complicated, and you will be required to give additional information.

Here’s a step-by-step guide to filling out the form.

Step 1: Fill in the blanks with your information.

Name, address, filing status, and Social Security number are all required. Your employer requires your Social Security number so that the money withheld from your paycheck is properly added to your annual income tax bill when it is sent to the IRS.

Single filers with a straightforward tax situation, as mentioned above, just need to sign and date the form after completing this step.

The rest of us must take a few more steps.

Step 2: Indicate if you have several jobs or if you have a working spouse.

If you have more than one job or your filing status is married filing jointly and your spouse works, move on to step 2. If this is the case, you can pick from one of the following three options:

Option A

When applicable, use the IRS’s online Tax Withholding Estimator and provide the estimate in step 4 (described below).

Option B

Fill out the Multiple Jobs Worksheet on page 3 of Form W-4 and input the result in step 4(c) of the instructions below.

To get the most accurate results, the IRS recommends that just one of a married pair, the one with the higher-paying job, completes the form.

The first thing you’ll need to figure out while filling out the Multiple Jobs Worksheet is whether you have two jobs (both you and your spouse), three jobs, or more. You’ll fill out line 1 on the form if you and your spouse each have one job. You will also complete line 1 if you have two jobs and your spouse does not work.

You’ll need to utilize the graphs on page 4 of Form W-4 to correctly fill in line 1. Because these graphs are organized by filing status, you’ll need to choose the appropriate one based on how you file your taxes. The higher-earning spouse’s dollar amounts are shown in the left-hand

Option C

If you only have two jobs between the two of you, check the box under option C, and do the same on the W-4 for the second employment. If both earn roughly the same amount, this choice makes logical. Otherwise, the IRS may withhold more tax than is necessary.

Step 3: Add dependants

Fill out step 3 if you have dependents to see if you qualify for the Child Tax Credit and the credit for other dependents. The Child Tax Credit is available to single taxpayers who earn less than $200,000 or married couples filing jointly who earn less than $400,000.94

Technically, the IRS definition of a dependent is a qualifying child or a qualifying relative who lives with you and is financially supported by you (see IRS Publication 501 for details), but the short answer is that a dependent is a qualifying child or a qualifying relative who lives with you and is financially supported by you.

Step 4: Make additional changes

The IRS will ask you if you want an additional amount withheld from your paycheck in this area. You answer, “Of course not.” “You’ve already taken enough of my money.”

However, because of the information you gave in the preceding sections, your employer may withhold too little tax during the year. This might result in a large tax bill in April, as well as underpayment penalties and interest.

How do you know whether this is a possibility? If you get considerable income reported on Form 1099, which is used for interest, dividends, or self-employment income for which you have not yet paid taxes, this is one of the most likely causes.

Step 5: Fill out form W-4 and sign it.

You must sign the form before it becomes valid.

Remember that you only need to complete the new Form W-4 if you start new employment or wish to adjust the amount withheld from your paycheck.

Add $2,000 to the number of eligible children under the age of 17 and $500 to the number of additional dependents. Line 3 should have a total of the two.

Important things to consider while filling out the w4 form

Make a note of whether or not you are exempt from withholding taxes.

If you are exempt, your employer will not deduct federal income tax from your paycheck. (However, Social Security and Medicare taxes will still be deducted from your paycheck.) In most cases, you can only be excused from withholding if two conditions are met:

  • Because you had no tax liability last year, you received a refund of all federal income tax withheld, and
  • This year, you expect the same thing to happen.

If you are not required to withhold, type “exempt” in the box below step 4. (c). Steps 1 and 5 must still be completed. You’ll also need to submit a new W-4 every year if you’re self-employed.

If your circumstances change, you must file a new W-4 form.

You can modify your W-4 at any time, but if any of the following items happen to you during the year, you should update your W-4 to reflect your tax situation:

  • You marry or get divorced.
  • You’ve got a child.
  • You purchase a home
  • You either take a wage reduction or earn a significant boost.
  • You only work for a portion of the year.
  • You make a lot of money through dividends.
  • You or your partner work as a freelancer on the side.

Get used to tinkering with your withholdings.

It’s fine to tinker. You have the option of providing a fresh W-4 to your employer at any time. That means you may complete a W-4, hand it into your employer, and then check your next paycheck to see how much money was withheld. Then you may start calculating how much you’ll have deducted from your paychecks over the course of the year. You can file another W-4 and amend if it doesn’t appear to be enough to pay your entire tax obligation, or if it appears to be much too much.

You can specify an extra predetermined amount on line 4(a) to be withheld from each paycheck to cover taxes on freelancing income or other income.

What does a W-4 form do?

The W-4 form gives your employer information so that they can figure out how much to withhold from your paychecks. The IRS will be able to collect federal income tax from you in a timely way as a result of this. A tax bill and even a penalty might occur from not paying enough during the year, but withholding too much can result in a refund when you complete your tax return.

A refund may sound appealing, but it typically implies that you might have received more take-home money in each paycheck. Your company will deduct money from your paycheck and submit it to the IRS after you’ve completed your W-4. These contributions will be applied to your annual tax bill, which you will compute when you complete your tax return.

The information you provide on Form W-4 is used by your employer to calculate what proportion of your compensation should be allocated to income taxes. Regardless of whether they work full-time or part-time, all workers receive this form if taxes are to be withheld from their income.

The amount of income tax withheld depends on a number of criteria, including your filing status and the number of dependents you have. If you’re single and have no dependents, for example, your employer will withdraw more to satisfy your tax burden than if you’re married or the head of household with one or more dependents (assuming all other information is identical). A lower paycheck is the result of having more withheld.

In addition, your employer withholds money to pay your FICA (Federal Insurance Contributions Act) taxes, which include Social Security and Medicare. Social Security and Medicare taxes, on the other hand, are statutory percentages that are unaffected by the information you provide on the W-4.

What’s on form W-4?

A four-page booklet contains Form W-4. The form, on the other hand, is merely one page long and includes only five stages. You must give the following information in Step 1:

  • Name and mailing address
  • The number assigned by the Social Security Administration
  • Whether you’re single, married, or filing separately, you’ll need to know your filing status.

Steps 2–4 are optional and only applicable to taxpayers who have several occupations or a working spouse (Step 2), are claiming dependents (Step 3), or have special income, deductions, or withholding adjustments (Step 4). (Step 4). The final step is to sign the paperwork.

Employers must next submit their name, address, employer identification number (EIN), and the employee’s first day of work. Instructions, a two-earners/multiple jobs worksheet, and a tax table are included on the remaining three pages of the W-4 package.

What Is federal tax withholding?

Your company deducts (withholds) a set amount from your paycheck each time you are paid. This money is used to pay your federal income taxes as well as various other federal taxes, such as FICA. Because the United States has a pay-as-you-go tax system, you pay your income taxes over the course of the year rather than all at once during tax season. As a result, every business must withhold and transmit money to the IRS for their employees’ federal taxes. Your employer will consider your pay as well as the information on your W-4 when considering how much to withhold.

It’s also worth noting that retirees receiving a monthly pension or annuity must deduct money from each payment. If you have additional sources of income, such as bonuses, commissions, or gambling, your withholding will almost certainly need to be increased. Without an employer, self-employed employees, independent contractors, small company owners, and others pay quarterly estimated taxes.

Who uses form W-4?

The information you provide on Form W-4 is used by your employer to calculate what proportion of your compensation should be allocated to income taxes. Regardless of whether they work full-time or part-time, all workers receive this form if taxes are to be withheld from their income.

Because taxes aren’t deducted from payments paid to freelancers and independent contractors, they need to fill out and submit Form W-9. In lieu of withholding, they must make their own anticipated quarterly tax payments using Form 1040-ES.

The amount of income tax withheld depends on a number of criteria, including your filing status and the number of dependents you have. If you’re single and have no dependents, for example, your employer will withdraw more to satisfy your tax burden than if you’re married or the head of household with one or more dependents (assuming all other information is identical). A lower paycheck is the result of having more withheld.

In addition, your employer withholds money to pay your FICA (Federal Insurance Contributions Act) taxes, which include Social Security and Medicare. Social Security and Medicare taxes, on the other hand, are statutory percentages that are unaffected by the information you provide on the W-4.

The objective of a W-4 form is to establish the amount of federal income tax withheld from an employee. Employees fill out the form using the tables and spreadsheets. The employee’s FIT withholding is then calculated using the form.

Use the tax tables in IRS Publication 15-T to figure out how much FIT to deduct from an employee’s pay. Determine the employee’s withholding amount using information from the employee’s W-4 form (e.g., filing status) and IRS tax tables.

Keep in mind that IRS Publication 15-T contains tax tables for W-4 forms from 2019 and before. Before calculating the employee’s withholding, double-check that you’re looking at the right tax table.

Types of W-4 forms

W-4 form

Employees would have filled out one form of Form W-4 when they initially started working at a firm in 2022. Employers use this form to compute withholding from salaries and earnings.

Employees who already have a W-4 on file from prior years aren’t required to fill out another form unless their withholding is changing. In such a situation, they, like all newly recruited employees, must utilize the amended form.

W-4 form (SP)

The Spanish variant of the standard W-4 is Form W-4 (SP). Aside from the linguistic change, the form is identical to Form W-4.

W-4P (Form W-4)

If you get pensions, annuities, or other deferred payments, you’ll need to fill out Form W-4P. If you want your plan administrator or employer to withhold taxes from a pension or annuity, fill out this form of the W-4.

W-4S (Form W-4)

If you additionally want to withhold from any sick pay to which you’re entitled, your employer may ask you to fill out this version of the form.

A third-party recipient of your sick pay, such as an insurance company, receives this form. If Form W-4S is completed, federal income tax will be deducted from these amounts.

W-4V form

If you receive government payments such as Social Security or unemployment benefits, you can ask the payer to withhold federal income tax using this optional form.

Where can I get a W-4 form?

Your employer should provide you a blank Form W-4 to fill out, as well as the worksheets that go with it. The form is also available to download from the IRS’s “Forms and Publications” page.

Benefits of form W-4

You might claim withholding allowances to minimize the amount of federal income tax taken from your paychecks during the 2017 tax year. However, these benefits were linked to the personal exemption, which was repealed as part of the Tax Cuts and Jobs Act. As a result, in 2020, the IRS issued a redesigned Form W-4 that did away with allowances and streamlined the process of filling it out. This will be in effect until the end of the 2021 tax year.

Recent form W-4 changes

Even though Form W-4 is now a whole page rather than a half page, it is still easier to comprehend. For starters, a lot of the fundamentals haven’t changed.

  • Your name, address, filing status, and Social Security number must all be provided.
  • The new W-4, like the previous one, permits you to claim exempt status provided you fulfill specific criteria.

Form W-4 needed only the following information in 2019 and previous years:

  • The total amount of allowances you claimed.
  • Any more money you’d like deducted from your paycheck.
  • Separate spreadsheets might be used to compute the number of allowances, which many people found difficult.

Because each part of Form W-4 explains why modifications are being made, it is a little easier to grasp. To determine your withholding, there are now three key components. Only fill in the blanks if they apply to your case.

Why did the IRS make modifications to the W-4 form?

You may have under-withheld and owed money, or you may have received a greater return than normal when you filed your taxes, depending on your situation. Form W-4 should, in theory, ensure that you do not owe taxes or receive a refund when you submit your tax return, which is why it was revised.

In late 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, drastically altering the federal income tax structure. Several adjustments were implemented as a result of the TCJA, including

  • personal exemptions are being eliminated
  • the standard deduction is being increased
  • The new tax adjustments, on the other hand, don’t always function with the prior edition of Form W-4.

The previous version calculated a number of allowances, which were then combined with any extra withholding amounts to determine how much federal income tax to deduct from your paycheck.

The allowance system was dependent on the usage of tax exemptions and deductions.

When these exemption deductions were eliminated as part of the Tax Cuts and Jobs Act, the Form W-4 no longer accurately assess the amount that needed to be withheld from paychecks.

The IRS took the first move by altering the withholding tables. These tables, coupled with the information on your Form W-4, are used by employers.

Claiming an exemption on Form W-4

Some employees may be excused from federal income taxes under exceptional circumstances. This indicates that no federal income tax is withheld from the employee’s pay.

Only a few employees are exempt from paying federal income taxes. If an employee meets the following criteria, they are exempt:

  • In the prior year, there was no federal income tax liability.
  • In the current year, you should expect to owe no federal income taxes.

If an employee is exempt from FIT, they must write “Exempt” in the area below Line 4 on Form W-4 (c). Exempt employees must also fill out their W-4 form with their name, address, SSN, and signature.

Where to get form W-4

Your employer should provide you a blank Form W-4 to fill out, as well as the worksheets that go with it. The form is also available to download from the IRS’s “Forms and Publications” page.

W2 vs. W4: What’s the difference?

The W-4 notifies companies how much tax to withhold from an employee’s paycheck, whereas the W-2 discloses how much a company paid an employee and how much tax it deducted during the year. Both are IRS tax forms that must be completed.

Both the W-2 and the W-4 may be found at IRS.gov. The W-2 and W-4 forms must be completed for each of your employees and are part of your company’s HR, accounting, and payroll operations.

Who is responsible for filling out the forms?

Form W-4: The W-4 is completed by employees. On the W-4, each employee submits personal information as well as withholding allowances. If you’re utilizing the W-4 to meet state new-hire reporting obligations, you simply need to fill out a portion of it as an employer.

W-2 Form: The W-2 is filled out by the employer using the year’s payroll data. For each employee, you fill out a W-2 form.

When will they be finished?

W-4 form: As part of their onboarding process, employees should complete a W-4 form. Because the W-4 affects how much tax is withheld from an employee’s salary, they should fill it out before their first payment. If an employee’s personal or financial position changes and they wish to increase their withholding allowances as a result, they can fill out a new W-4.

W-2 form: Every year, by January 31st, you must file a W-2 form for each employee. The W-2 contains information from the prior year. As a result, a W-2 submitted in January 2022 will include payroll and tax information from 2021.

What should you do with them?

Form W-4: You should submit the W-4 (either online or physically) when your employee completes it, but you do not need to send it to the IRS or the Social Security Administration. A W-4 form is only required if you’re utilizing it to comply with state new-hire reporting requirements.

W-2 Form: You must mail or electronically submit all W-2 forms to the Social Security Administration. You must also deliver completed W-2 forms to all of your workers by the end of January each year. It’s possible that you’ll need to file a copy with your state or local tax authorities as well.

What should I put on my W-4?

You can utilize Form W-4 to raise your withholding if you received a large tax bill when you filed your tax return last year and don’t want another. That way, the next time you file, you’ll owe less (or nothing). If you received a large refund last year, you’re effectively giving the government a free loan and may be forced to live on less money for the rest of the year. If you want to minimize your withholding, use Form W-4.

Here are some actions you might do to achieve a certain goal:

How to have extra taxes deducted from your salary

Here’s how to change your W-4 if you want extra taxes deducted from your paychecks, maybe resulting in a tax refund when you submit your yearly return.

  • Reduce the number of people who are depending on you.
  • On line 4, add an extra amount to withhold (c).

How to reduce the amount of tax deducted from your salary

Here’s how to change your W-4 if you want less tax taken out of your paychecks, maybe resulting in having to pay a tax bill when you submit your yearly return.

  • Increase the number of people who are depending on you.
  • Line 4(a) or 4(c) should be reduced.
  • The number on line 4(b) can be increased.

How to utilize a W-4 to avoid owing any money on your tax return

The correctness of your W-4 is critical if your goal is to design your paycheck withholdings so that you wind up with a $0 tax payment when you complete your annual return.

  • Make sure you’re using the proper tax-filing status. If you file as a head of household and haven’t updated your W-4 in a few years, for example, you might want to consider filling out a new W-4 if you wish to the amount of taxes taken from your income to better match your tax due.
  • Check to see whether your W-4 accurately reflects your current family situation. If you had a child or a teenager turn 18 this year, your tax position might have changed, and you should amend your W-4.
  • Estimate your additional sources of income with precision. Capital gains, investment interest, rental properties, and freelancing are just a few examples of non-job income that may be taxed and should be updated online 4(a) of your W-4.
  • Calculate your deductions precisely. When you submit your tax return, the W-4 expects you’ll take the standard deduction. If you plan to itemize (probably because itemizing reduces your taxes more than the standard deduction), you’ll need to calculate those additional deductions and alter what’s online 4 (b).
  • Make use of the line for further withholding. You can specify a specified dollar amount on line 4 if you wish to have a certain amount deducted from each check for taxes (c).

Conclusion

Because the IRS mandates people to pay taxes on their income throughout the course of the year, it’s critical to fill out a Form W-4 accurately.

If you withhold too little tax, you might owe the IRS a hefty sum in April, plus interest and penalties for underpaying your taxes throughout the year.

Your monthly budget will be tighter than it has to be if you have too much tax withheld. You’ll also be providing the government an interest-free loan when that money might be saved or invested. Your overpaid taxes will not be refunded until the following year when you file your tax return and receive a refund.

The money may feel like a windfall at that time, and you may spend it less carefully than if it had poured in gradually with each paycheck.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.