Form W-4, officially titled Employee’s Withholding Certificate, is a common and very important tax form. It helps your employer know how much federal income tax to withhold from your paychecks. That means the information you put on your W-4 directly impacts the size of your paychecks. However, the W-4 underwent some major changes and simplifications this past year, including the removal of allowances on the form. The following guide will take you step by step through the process of filling out your W-4 and show you what’s changed.
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Form W-4: The Basics
W-4 forms aren’t as scary as they may look. Employees complete this form so that their employers know how much federal income tax to withhold from their paychecks. In fact, this form directly affects how much money you will take home with each paycheck. That’s why you will have to submit a W-4 every time you start a new job. You can also turn in a new form if your filing status or financial situation changes. Changes could be due to something like a divorce or the birth of a child.
To understand how the W-4 works, you need to understand withholding. Withholding involves having a portion of your earnings taken from your pay and sent to the government. This money goes toward paying your annual tax bill. Even if you’re not working, you may have taxes withheld from other sources of income such as pensions, annuities, commissions and other awards.
When you submit a W-4, you can expect the information to go into effect fairly quickly. Your employer must update your information by the beginning of the pay period that ends 30 or more days after you hand in the form.
If you forget to give your employer your W-4, the IRS will treat your income like you’re a single person. That’s the highest possible withholding rate. This could be a real problem if you need more take-home pay to cover big expenses like buying a new house.
No More Allowances
The biggest change to the W-4 form is the removal of the allowances section. You’ll no longer be able to claim certain allowances to increase or decrease your withholding. The new form instead places emphasis on determining all of your sources of income as well as your dependents so that your withholding amount is as accurate as possible. Previously, taxpayers relied on a separate worksheet that could help determine the total number of allowances available to claim.
Deductions and Adjustments
On the deductions and adjustments worksheet, you’ll need to do some math as you estimate your adjustments and add up your expected deductions (for instance, for giving to charity or paying interest on a mortgage). If you get stuck, the IRS has a withholding calculator that will itemize your deductions.
Because of the 2017 tax plan, you can no longer make some of the adjustments you used to make. Some that have been eliminated include deductions to cover alimony and moving expenses. Further, because the standard deduction has been doubled, many people who used to itemize deductions may no longer do so. (Learn more about how the new Republican tax plan will affect you.) As this doubled standard deduction means that the vast majority of taxpayers will just take the standard deduction, this section is easier than it might initially appear; if you plan to just take the standard deduction like most taxpayers, you can leave the deductions entry blank.
How to Fill out the Two-Earners/Multiple Jobs Worksheet
If you’re married to a spouse who works or if you work a second job, next you need to take a look at the two-earners/multiple jobs worksheet (page three of the W-4 instructions) and fill out step 2 of the W-4. You’ll only actually need to do one of a), b) or c) in step 2 on the form. Option a) is supposed to be the most accurate, option b) is also accurate while requiring more manual work, and option c) is the least accurate and least time consuming.
Adding It All Up: Filling out Your W-4 Form
Using the information from the worksheets, you can now fill out your W-4 form. Once you’ve finished, the worksheets are yours to keep.
Step 1 of your W-4 is for your personal information: your name, address, Social Security number and filing status. Steps 2-4 are only necessary to complete if they apply to you. Step 2 is for those who have multiple jobs or whose spouse works, step 3 is where you’ll claim dependents and step 4 is where you’ll list any other adjustments.
In order to avoid withholding altogether, you have to fall into both of the following categories:
- You had no tax liability in the previous tax season. All of the federal income tax you paid was refunded back to you.
- You have no tax liability again this year
Generally, you can say you have no tax liability if you don’t need to file an income tax return or you owe zero taxes. You may also be able to claim an exemption from withholding if your income for the year is $1,000 or less.
Finally, sign the form and you’re good to go.
How Does the W-4 Form Differ From the W-2?
Yes, both of these forms start with the letter ‘w,’ but that’s where the similarities end.
Unlike a W-4, a W-2 form is what your employer fills out for all employees. It indicates the total amount of money that was withheld and put toward Social Security, Medicare, state, local and federal income taxes. A W-2 shows your annual earnings from wages and tips as well.
If you aren’t switching jobs or going through life changes, you won’t need to refile your W-4 just because the form has changed. However, all new employees need to fill out a W-4, and failing to turn in a W-4 can have big tax implications. While the form is more straightforward and doesn’t include allowances like it has in the past, it’s still important to properly and accurately list information on your W-4.
After the W-4: Navigating Tax Season
Tax season can be a confusing and overwhelming time. With the number of different tax forms and codes out there, it’s difficult to keep track of them all. One way to ensure a stress-free tax season is by correctly filling out your W-4 form. In addition, it’s a good idea to start your tax preparation early and stay on top of the process.
If you’re unsure whether you need to file your taxes, there’s an income threshold that helps determine whether you should file. This threshold is determined by factors like age, earned income, unearned income and if someone claims you as their dependent.
If you’re struggling with specific numbers on tax forms, not to worry. There are a lot of calculators out there to make the process clearer. You can use a withholding calculator to determine your deductions and adjustments; or an income tax calculator to estimate what you will owe once April rolls around.
Keep in mind that this year’s tax season may be different than last year’s. Changes can range from a new tax deadline or updates to the tax code. If this is hard to keep track of, you can always hire a professional tax accountant to help.
Tax Planning and Your Financial Plan
- Taxes are just one aspect of your financial situation. To build a financial plan that accounts for taxes and other factors, it’s a good idea to work with a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Starting a new job? Even before you fill out your W-4, you can get an estimate for how much your take-home pay will be. Use our paycheck calculator to see how much will be left over after taxes and other withholdings.
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