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After you accept a job offer, your new employer will ask you to fill out Form W-4. The U.S. government requires employees to fill out a W-4. It tells your employer how much money to withhold from your paycheck for federal income taxes. As daunting as that may sound, the W-4 is a relatively easy form. It takes up less than one page, and since the form underwent major changes this past year, there are only 4 steps for you to actually fill out. So whether you’re a hiring manager or a hopeful new employee, let’s break down the purpose of the W-4 and the information it contains.

What Is Form W-4?

The official title of Form W-4 is Employee’s Withholding Certificate. When you complete the W-4 correctly, it informs your employer of how much money to withhold from your paycheck for federal income taxes. Because of this, you need to fill out a new copy of the form anytime you start a new job. You can also fill out a new W-4 at any other time. If you experience a big financial change in your life, like if you get a big raise or have a child, you should fill out a new W-4. The IRS also recommends filling out a new W-4 each calendar year. This helps ensure that you’re always paying the right amount in taxes.

What’s on Form W-4

Form W-4 comes in a four-page packet. However, the form itself is quite short. It takes up less than half of the first page and has only has 5 steps. The information that employees need to enter includes:

  • Name and address
  • Social Security number
  • Filing status – single, married or married filing separately

Steps 2-4 are optional and only apply to taxpayers who are claiming dependents, have multiple jobs or a working spouse or who are listing other adjustments.

Employers then enter their name, address, employer identification number (EIN) and the first date of the employee’s employment. The other three pages of the W-4 packet include instructions and the two-earners/multiple jobs worksheet.

What Is Federal Tax Withholding?

Each time you get paid, your employer takes out (withholds) a certain amount of money from your paycheck. This money goes toward your federal income taxes and some other federal taxes, like the FICA taxes. Because the U.S. has a pay-as-you-go tax system, you pay your income taxes throughout the year instead of as one lump sum during tax season. So every employer needs to withhold money for their employees’ federal taxes, and send it to the IRS. When determining how much to withhold, your employer will consider your salary and the information on your W-4.

It’s also good to note that retirees who receive a monthly pension or annuity check must also withhold money from each payment. If you have other earnings, such as from bonuses, commissions or gambling, you likely need to withhold money. Self-employed workers, independent contractors, small business owners and others without an employer must withhold their own taxes. You can do this by paying estimated taxes.

What are Other Adjustments on the W-4?

When your employer withholds tax, your salary will factor in because it determines your tax bracket. However, you can change the exact amount your employer withholds by listing other income, deductions and extra withholding.

You can always request that your employer withhold a certain amount of extra money. This additional withholding also goes toward your income taxes and helps you fine-tune your tax bill. Ideally, you will will neither owe a significant amount of money nor get a big refund when you file your tax return in April. Additional withholding helps you right-size your taxes if you’re expecting to get a refund.

For example, let’s say you estimate your federal tax return and find that you’re going to get a refund of about $1,000. If you get paid twice each month (24 pay periods) then you may want to withhold an additional $40 from each paycheck. This will bring you close to paying exactly how much you owe in annual income taxes.

What Employers Do With a W-4

As an employer, it’s important to have all of your employees complete a W-4 when they join your company. You should keep an employee’s most current W-4 on file in his or her payroll file. Then you need to be sure you input the correct number of allowances into your payroll processing system. If an employee does not complete and sign a W-4, you must withhold federal income taxes as though the employee is a single filer with zero allowances. (This is the highest withholding rate possible.)

The Takeaway

what is a w-4?

The W-4 is the form where you instruct your employer on how much money to withhold from your paycheck for federal income taxes. You need to fill out a W-4 anytime you start a new job. You should also update the form when you experience major financial changes, like when you purchase a home. With that being said, and especially now that the form has been revamped, the W-4 is among the most straightforward IRS tax forms. There are only 5 steps total, and many taxpayers won’t need to pay attention to steps 2-4. To help you fill out the form correctly, it’s also a good idea to estimate the size of your paycheck with a free paycheck calculator. Then you can make other adjustments to your W-4 as necessary.

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.

Photo credit: IRS.gov, ©iStock.com/mediaphotos, ©iStock.com/PeopleImages

Derek Silva, CEPF® Derek Silva is determined to make personal finance accessible to everyone. He writes on a variety of personal finance topics for SmartAsset, serving as a retirement and credit card expert. Derek is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance® (CEPF®). He has a degree from the University of Massachusetts Amherst and has spent time as an English language teacher in the Portuguese autonomous region of the Azores. The message Derek hopes people take away from his writing is, “Don’t forget that money is just a tool to help you reach your goals and live the lifestyle you want.”
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