W-4 Form

What is a 'W-4 Form'

An employee completes an IRS W-4 form, or an Employee's Withholding Allowance Certificate, to indicate his tax situation to the employer. The W-4 form tells the employer the correct amount of tax to withhold from an employee's paycheck based on the employee's marital status, number of exemptions and dependents and other factors.

A taxpayer can file a new W-4 any time his situation changes, such as when he marries, divorces or has a child or a dependent dies. A change in status can result in the employer withholding more or less tax.

BREAKING DOWN 'W-4 Form'

The employee fills out seven lines of the W-4 form. The first few lines include the taxpayer's name, address and Social Security number. The worksheet above the form lets the taxpayer estimate the amount of allowances on his tax withholding. Increasing the amount of allowances reduces the amount of money withheld from the paycheck. A person can claim an exemption from withholding any money if he did not have a tax liability during the previous year and expects to have zero tax liability in the next year.

Calculating Allowances

The worksheet starts by letting the taxpayer add one allowance if he cannot be claimed as a dependent on someone else's income tax return. The employee can take another allowance if he's single and has just one job, is married with one job and the spouse doesn't work, or has wages from a second job within the family totaling less than $1,500. He can take another allowance if his spouse doesn't work.

Dependents and Child Care

The employee adds the number of dependents into the withholding amount. Dependents are children, adult relatives who don't work or elderly people living with the taxpayer. The worker can take an allowance for filing as head of household if he is unmarried and makes more than 50 percent of the household's income.

A worker can claim one extra allowance if child care expenses are higher than $2,000 per year. At that point, he can claim a tax credit. Another allowance comes into play if a worker plans to use any child tax credits on an income tax return.

The employee adds together all of the allowances listed on the worksheet to get a total. He fills in the number of allowances in Line 5, and then he can designate any additional amount of money he may wish the employer to withhold from each paycheck.

What the Employer Does

The employer then calculates how much to withhold from a paycheck based on the allowances calculated on Form W-4. The money withheld goes to the Internal Revenue Service (IRS) after each paycheck.

When an employee files an income tax return each year, he may get back some of the money withheld in the form of a refund if the employer withheld too much money from his pay. If the employer withholds too little money , the taxpayer may owe the IRS additional money.

RELATED TERMS
  1. Withholding

    The portion of an employee's wages that is not included in his ...
  2. Withholding Tax

    1. Income tax withheld from employees' wages and paid directly ...
  3. Excess Employer Withholding

    When one or more employers withhold more than the aggregate maximum ...
  4. IRS Publication 515

    A document published by the Internal Revenue Service that provides ...
  5. IRS Publication 15 - Employer's ...

    A document published by the Internal Revenue Service detailing ...
  6. IRS Publication 505

    A document published by the Internal Revenue Service that outlines ...
Related Articles
  1. Personal Finance

    What is Withholding Tax?

    Withholding tax is the income tax federal and state governments require employers to withhold from employee paychecks.
  2. Personal Finance

    Are You Paying Too Much in Taxes?

    Overpaying taxes amounts to an interest-free loan to the government. Here are some ways to avoid that scenario.
  3. Personal Finance

    Tax Withholding: Good For Government, Bad For Taxpayers

    It's important to understand where that money coming out of your paycheck goes and why - after all, you earned it.
  4. Personal Finance

    Have Household Help? Don't Get In Tax Trouble

    Hiring household workers can be a complicated process. Know what the government requires so you can prevent penalties and problems down the road.
  5. Personal Finance

    Small Business Tax Obligations: Payroll Taxes

    Don't leave it up to your accountant - owners are ultimately responsible for fulfilling tax obligations.
  6. Personal Finance

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  7. Retirement

    Employers: Don't Forget IRS Form 941

    Your obligations as an employer include various employment taxes. Use this form to report them.
  8. Personal Finance

    Understanding the W-2 Form

    The W-2 Form is a standard Internal Revenue Service (IRS) form that employers are required to furnish employees at the end of each year.
  9. Personal Finance

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  10. Retirement

    Tough Times: Should You Dip Into Your Qualified Plan?

    401(k)s, pensions and profit-sharing plans can be a source of cash, but there are consequences to this option.
RELATED FAQS
  1. How can I calculate my withholding tax rate?

    Find out how to use the IRS website to estimate your proper withholding tax rate, and what you need to do if your information ... Read Answer >>
  2. What is the difference between a single and a married withholding tax?

    Find out how the withholding tax differs for married and single individuals, including examples of how the income tax rate ... Read Answer >>
  3. I made $2,700 last year. Do I need to file taxes if my job did not take taxes out ...

    I am married and filing separately. My job, despite my W4 being correct, did not take any taxes out of... Read Answer >>
  4. What is IRS Form W-2 used for?

    Any employer who pays an employee $600 or more for the year, including noncash forms of remuneration, must file a form W-2 ... Read Answer >>
  5. How is Social Security tax calculated?

    Find out how Social Security tax withholding is calculated, including the impact of the Medicare tax and the maximum taxable ... Read Answer >>
  6. What’s the difference between IRS Forms 1040 and 1040EZ?

    Though very similar, the differences between the 1040 and 1040EZ Forms are significant when it comes to filing your tax return. ... Read Answer >>
Trading Center