When you start a new job, you may feel overwhelmed by the stack of documents you’re required to sign. One of those documents is a W-4 form. This form might not seem important, but it’s one to pay close attention to as it can impact your take-home pay and your taxes. You should also revisit your W-4 form periodically — even if you’re still with the same employer.
What Is Form W-4?
A W-4 form is an employee’s withholding certificate. It’s an Internal Revenue Service form that tells your employer how much to deduct from your pay for federal taxes. Most people fill out this form when they start a new job. The IRS also recommends submitting an updated form annually or when you have any personal or financial changes to report, such as getting married, having children or getting divorced.
A Complete Guide:
What Is a W-4 Form Used For?
The W-4 form helps your employer withhold the correct amount of federal income tax from your paycheck, based on the information you provide. Completing the form accurately can help you avoid having too little or too much tax withheld.
If you have too little withheld, you’ll owe money to the IRS when you file taxes. If you have too much tax withheld, you’ll get a refund, but you’ll also have less to spend on a day-to-day basis. Some people like getting a large refund, but others prefer to have more money in each paycheck.
On the form, you provide your name, address, Social Security number and filing status in Step 1. Step 2 is where you account for all of the jobs you and your spouse have. Step 3 allows you to claim any dependents you may have. Step 4 is for other adjustments, and Step 5 is for your signature. According to the IRS, the only steps you are required to fill out on the W-4 are steps 1 and 5; all other steps are optional.
What Are Other Adjustments on the W-4?
You can indicate that you need other adjustments in Step 4, such as:
- Indicate that you have other income. If you have other income that won’t have withholding, like interest or dividends from investments, you can include that in Step 4.
- Add deductions. If you anticipate taking itemized deductions, you can indicate that on the form. Most people take the standard deduction, but you can compare your itemized deductions to the standard deductions on the deduction worksheet included with the W-4 form instructions.
- Extra withholding. If you’re worried about not having enough taken out for taxes, you can ask your employer to withhold an additional amount each pay period.
When Do You Need To File a New W-4?
You can file a new W-4 at any time, and you may want to update it annually. You should also consider changing your W-4 form for the following reasons:
- You have a change in marital status.
- You give birth to or adopt a child and need to claim an additional dependent.
- You change or lose your job. When you start a new job, it’s often wise to increase the withholding amount to your new W-4 form to balance things out.
- You get a raise or promotion.
- You owe money at tax time.
- You receive a larger refund than you would prefer.
Important Notes on Form W-4 Withholding
The information on your W-4 form directly affects the amount of your tax withholding. Keep the following details in mind when filling out or updating your W-4:
- Your employer withholds less money from your paycheck if you claim more adjustments.
- You have to pay the IRS in a lump sum if too little is withheld.
- Voluntarily raising the amount withheld can help avoid having to pay at tax time.
When you had no tax liability in the prior year and expect that circumstance to continue, you can declare yourself eligible for withholding tax exemption, which means that you are exempt from withholding on your W-4 form. This typically happens if your income is low enough for your standard deduction to wipe out the taxes.
Use the IRS’s online withholding estimator to make sure your W-4 form is accurate. Prepare to use the calculator by gathering your most recent income tax return and paycheck stub.
- Is a W-4 the same as a W-2?
- No, the W-4 and W-2 are different forms. The W-4 is filled out by an employee and tells the employer how much to withhold from their paychecks for taxes. The W-2 is provided by the employer and is a record of how much the employee made that year and how much they had withheld from their paychecks.
- Who needs to fill out a W-4?
- Everyone who is employed needs to fill out a W-4. It is often included in onboarding paperwork, but it's a good idea to review yours every year to make sure it's still accurate.
- What is the W-4 form used for?
- The W-4 tells your employer how much of your paycheck to withhold for taxes.
- Do I claim zero or one on my W-4?
- Claiming zero means that the maximum amount will be withheld each pay period; claiming one means you'll have less withheld. You can also claim Exemption to have no tax withheld, but keep in mind that may result in your owing taxes – and possibly fees – when you file, so make sure you qualify for the exemption.
- Which is the best option for you depends on your budget, so it's a good idea to meet with a financial advisor if you're not sure.
Cynthia Measom contributed to the reporting for this article.
Information is accurate as of Feb. 13, 2023.