What's the right way to fill out a W-4 Form? That's the tax form called a W-4 Employee's Withholding Certificate that your employer hands you when you start a new job. If tax forms fill you with dread—you don't understand them, you’re afraid of what will happen if you make a mistake—just keep reading. This article will explain what a W-4 is and walk you through how to fill out the form, which was completely revamped in 2020, line by line.
- The way you fill out IRS Form W-4, Employee's Withholding Allowance Certificate, determines how much tax your employer will withhold from your paycheck.
- You want to complete the form accurately so the correct amount of income tax is withheld from your paychecks; otherwise, you might end up owing the IRS when you file your taxes.
- The W-4 form had a complete makeover in 2020 and now has five instead of seven sections to fill out; the reason for the makeover was to improve clarity for taxpayers completing the form.
What Is Form W-4 Used For?
You complete a W-4 form so that your employer will withhold the correct amount of income tax from your paychecks. If you have an accountant or another tax preparer, confirm your decisions with them before you turn in the form.
The way you fill out Form W-4, Employee's Withholding Certificate, determines how much tax your employer will withhold from your paycheck. Your employer sends the money it withholds from your paycheck to the Internal Revenue Service (IRS), along with your name and Social Security number (SSN). Your withholding counts toward paying the annual income tax bill you calculate when you file your tax return in April. That’s why a W-4 form asks for identifying information, such as your name, address, and Social Security number.
You can claim an exemption from withholding any money if you did not owe tax during the previous year and expect to have zero tax liability in the next year.
2020 Changes to Form W-4
The IRS rolled out a new version of Form W-4 in 2020. It is the first major revamp of the form since the Tax Cuts and Jobs Act (TCJA) was signed in December 2017; TCJA made major changes to withholding for employees.
In fact, the W-4 revamp and the tax changes since the TCJA may be a reason to look again at the W-4 you filed back when you first came to your employer and see if you need to make changes. Another reason to relook at your W-4: What you learn when you file your current income tax forms, especially if you discover that you didn't have enough withheld from your paycheck and you now owe money to the IRS. It is also beneficial to update your W-4 any time you have a big life change. For example, the addition of a child, a marriage or divorce, or if you begin a freelance job on the side.
The 2020 version of the W-4 form eliminates the ability to claim personal allowances. Previously, a W-4 came with a Personal Allowances Worksheet to help you figure out how many allowances to claim. The more allowances you claimed, the less an employer would withhold from your paycheck and the fewer you claimed, the more your employer would withhold. Allowances were previously loosely tied to personal and dependent exemptions claimed on your tax form. Although the standard deduction was doubled as a result of the TCJA, personal and dependent exemptions were eliminated.
The new form aims to make the process easier for both employees filling out the form and employers withholding taxes. It has five sections to fill out versus the seven sections from the pre-2020 version.
How to Read and Fill Out Form W-4: A Step-By-Step Guide
All pages of Form W-4 are available on the IRS website.
If you are single or married to a spouse who doesn't work, don't have any dependents, only have income from one job, and aren’t claiming tax credits or deductions (other than the standard deduction) filling out a W-4 is very straightforward. Starting in 2020, all you have to do is provide your name, address, Social Security number, filing status, and sign and date the form.
If your tax situation is more complex, you will need to provide information on dependents, your spouse's earnings, additional income, and any tax credits and deductions you plan to claim.
Here's how completing the form works.
Step 1: Provide Your Information
Provide your name, address, filing status and Social Security number. Easy. Your employer needs your Social Security number so that when it sends the money it withheld from your paycheck to the IRS, the payment is appropriately applied toward your annual income tax bill. After completing this step, single filers with a simple tax situation, as described above, only need to sign and date the form and they are done.
Everyone else will have to take a few more steps.
If you don’t submit Form W-4 at all, the IRS requires your employer to withhold at the highest rate.
Step 2: Add Multiple Jobs or a Working Spouse
Proceed to step two if you have more than one job or your filing status is married filing jointly and your spouse works. If this applies to you, you have three options from which you can choose one:
Use the IRS' online Tax Withholding Estimator and include the estimate in step four (explained below) when applicable.
Fill out the Multiple Jobs Worksheet, which is provided on page three of Form W-4, and enter the result in step 4(c), which is explained below. It is provided on page three of Form W-4, which your employer should have given to you, or you can download it from the IRS. The IRS advises that the worksheet should only be completed on one W-4, and the result should be entered for the highest paying job only, to end up with the most accurate withholding.
When filling out the Multiple Jobs Worksheet, the first thing you will need to differentiate is whether you have two jobs (including both you and your spouse) or three or more. If you and your spouse both have one job, you'll complete line 1 on the form. Similarly, if you have two jobs and your spouse does not work, you will also complete line 1.
In order to accurately fill in line 1, you'll need to use the graphs provided on page four of Form W-4. These graphs are separated out by filing status, so you'll need to select the correct graph based on how you file your taxes. The left column lists dollar amounts for the higher earning spouse, and the top row lists dollar amounts for the lower earning spouse.
For example, let's look at a person who is married filing jointly. Assuming Spouse A makes $80,000 per year and Spouse B makes $50,000 per year, Spouse A would need to select $8,420 (the intersection of the $80,000 - $99,999 row from the left hand column and the $50,000 - $59,999 column from the top row) to fill in line 1 on the Multiple Jobs Worksheet.
If you have three or more jobs combined, between yourself and your spouse, you will need to fill out the second part of the Multiple Jobs Worksheet. First, select your highest paying job and second highest paying job. Use the graphs on page 4 to figure the amount to add to line 2a on page 3. This step is the same as example above, except you're using the second highest paying job as the "lower paying job."
Next, you'll need to add the wages from your two highest jobs together. Use that figure for the "higher paying job" on the graph from page 4, while using the wages from the third job as the "lower paying job." Enter the the amount from the graph to line 2b on page 3, and add lines 2a and 2b together to complete 2c.
For example, let's assume Spouse A has two jobs making $50,000 and $15,000 while Spouse B has a job making $40,000. Spouse A would enter $3,570 on line 2a (the intersection of the $50,000 - $59,999 row from the left hand column and the $40,000 - $49,999 column from the top row). Adding $50,000 and $40,000 together for a total $90,000, Spouse A would enter $3,260 on line 2c (the intersection of the $80,000 - $99,999 row from the left hand column and the $10,000 - $19,999 column from the top row). Adding these two amounts together results in $6,830 for line 2c.
You'll need to enter the number of pay periods in a year at the highest paying job on line 3 of the Multiple Jobs Worksheet. For example, 12 for monthly, 26 for biweekly, or 52 for weekly. Divide the annual amount on line 1 (for two jobs) or line 2c (for three or more jobs) by the number of pay periods. Enter this figure on line 4 of the Multiple Jobs Worksheet as well as line 4c of the Form W-4.
Check the box in option C if there are only two jobs total and do the same on the W-4 for the other job too. Choosing this option makes sense if both jobs have similar pay, otherwise more tax may be withheld than necessary.
Step 3: Add Dependents
If you have dependents, fill out step three to determine your eligibility for the Child Tax Credit and credit for other dependents. Single taxpayers who make less than $200,000 or those married filing jointly who make less than $400,000 are eligible for the Child Tax Credit.
Technically, the IRS definition of a dependent is pretty complicated (see IRS Publication 501 for details), but the short answer is that it’s a qualifying child or qualifying relative who lives with you and whom you support financially.
Multiply the number of qualifying children under age 17 by $2,000 and the number of other dependents by $500. Add the dollar sum of the two to line three.
Step 4: Add Other Adjustments
In this section, the IRS wants to know if you want an additional amount withheld from your paycheck. “Of course not. You’re taking enough of my money already,” you think. But, the information you've provided in the previous sections might result in your employer withholding too little tax over the course of the year. If they withhold too little, you will end up with a big tax bill and possibly underpayment penalties and interest in April. In that case, tell your employer to withhold extra money from each paycheck so that it doesn’t happen.
How do you know if this might happen? One likely cause is if you receive significant income reported on Form 1099, which is used for interest, dividends, or self-employment income—no income tax is withheld from these sources of income. You may also need to use this section if you're still working, but receive pension benefits from a previous job or Social Security retirement benefits.
Step four of a W-4 allows you to have additional amounts withheld by filling out one or more of the following three sections:
If you expect to earn "non-job" income not subject to withholding, such as from dividends or retirement accounts, enter the amount in this section.
Fill out this section if you expect to claim deductions (such as itemized deductions) other than the standard deduction and want to reduce your withholding. To estimate your 2020 deductions use the Deductions Worksheet provided on page three of the W-4 form.
This section allows you to have any additional tax you want withheld from your pay each pay period, including any amounts from the Multiple Jobs Worksheet, above, if this applies to you.
Step 5: Sign and Date Form
While signing and dating a W-4 is the easiest step, it is no less important than any other. The form says, “Under penalties of perjury, I declare that I have examined this certificate and, to the best of my knowledge and belief, it is true, correct, and complete.” You have to sign your name below that statement, where it says, “Employee’s signature.” Then enter the date to the right. It's not valid until you do.
When You Need a New W-4
In general, your employer will not send form W-4 to the IRS. After using it to determine your withholding, the company will file it. You only have to fill out the new W-4 form if you start a new job in 2020 or if you want to make changes to how much is withheld from your pay.
You can change your withholding at any time by submitting a new W-4 to your employer.
Situations when you might need to change your W-4 include: getting married or divorced, adding a child to your family, or picking up a second job. You may also want to submit a new W-4 if you discover that you withheld too much or too little the previous year when you're preparing your annual tax return, and you expect your circumstances to be similar for the current tax year. Your W-4 changes will take effect within the next one to three pay periods, after your company has updated your information in the payroll system.
Special Considerations for a W-4 Form
If you start a job in the middle of the year and were not employed earlier that year, here's a tax wrinkle that can save you money: If you will be employed no more than 245 days for the year, request in writing that your employer use the part-year method to compute your withholding. The basic withholding formula assumes full-year employment, so without using the part-year method, you’ll have too much withheld, and you’ll have to wait until tax time to get the money back.
The Bottom Line
It’s important to fill out a W-4 form correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you have too little tax withheld, you could owe a surprisingly large sum to the IRS in April, plus interest and penalties for underpaying your taxes during the year.
At the same time, if you have too much tax withheld, your monthly budget will be tighter than it needs to be. Also, you’ll be giving the government an interest-free loan when you could be saving or investing that extra money and earning a return—and you won’t get your overpaid taxes back until the following year when you file your tax return and get a refund. At that point, the money may feel like a windfall, and you might use it less wisely than you would have if it had come in gradually with each paycheck.