What Is Form W-4: Employee's Withholding Certificate?

When you get a new job, one of the many pieces of paper your employer will ask you to complete is Form W-4: Employee's Withholding Certificate. The way you fill out this form 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 for reference.

Your withholding counts toward your annual income tax bill that you calculate when you file your tax return in April.

Key Takeaways

  • Employees fill out a W-4 form to inform employers how much tax to withhold from their paycheck based on filing status, dependents, anticipated tax credits, and deductions.
  • If the form is filled out incorrectly, you may end up owing taxes when you file your return.
  • The IRS simplified the form in 2020.
  • Employees can change their withholding at any time by submitting a new W-4 to their employer.
  • A new W-4 must be filled out whenever you have a new employer.

Starting a New Job

You must complete a new W-4 whenever you start a new job. 

What Is Form W-4: Employee's Withholding Certificate Used For?

When you start a new job, your employer will ask you to fill out a W-4 form. It’s important to complete a W-4 correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you don't withhold enough tax, 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 withhold too much tax, your monthly budget will be tighter than it needs to be. In addition, you’ll be giving the government an interest-free loan when you could be saving or investing that extra money and earning a return. Additionally, you won’t get your overpaid taxes back until the following April 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 if the money had been received gradually with each paycheck. If you don’t submit form W-4 at all, the IRS requires your employer to withhold your wages as though you were single with no other adjustments.

How to Fill out Form W-4: Employee's Withholding Certificate

The IRS redesigned Form W-4 in 2020 and did away with the ability to claim personal allowances. Previously, a W-4 came with a Personal Allowances Worksheet to help you calculate what allowances to claim. Answering the worksheet’s questions shows your tax situation so that you can instruct your employer to withhold the correct amount of money from your paycheck.

You only have to fill out a new W-4 form if you start a new job in 2021 or if you want to change the amount withheld from your pay.

The more allowances you claimed on Form W-4, the less your employer would withhold from your paycheck. The fewer allowances you claimed, the more your employer would withhold.

IRS Form W-4 Page 1

All pages of Form W-4 are available on the IRS website.

The revised form aims to make the process of determining how much an employer should withhold easier. If you are single or have a spouse who doesn't work, don't have any dependents, only have income from one job, and aren’t claiming tax credits or itemizing deductions (other than the standard deduction), filling out a W-4 is simple. As of 2020, all you have to do is provide your name, address, Social Security Number, and filing status, and then sign and date the form.

Estimating Your Taxes in More Complex Situations

If your tax scenario is more complex, you will have to provide information on dependents, your spouse's earnings, income from other jobs, and any tax credits and deductions you plan to claim.

The IRS recommends using its online Tax Withholding Estimator to make sure the right amount is being withheld from your pay. IRS Publication 15-T, meanwhile, is used by employers to figure out how much federal income tax to withhold from employees' paychecks.

You can also use Form W-4 to request additional money be withheld from each paycheck, which you should do if you expect to owe more in taxes than your employer would normally withhold.

You might ask your employer to withhold an additional sum if you earn self-employment income on the side and want to avoid making separate estimated tax payments for that income. You can also use Form W-4 to prevent your employer from withholding any money at all from your paycheck, but only if you are legally exempt from withholding because you had no tax liability for the previous year and you also expect to have no tax liability for the current year.

When to File a New W-4 Form: Employee's Withholding Certificate

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 can change your withholding at any time by submitting a new W-4 to your employer.

Situations requiring a change to your W-4 include getting married or divorced, having a child, or picking up a second job. You might also want to submit a new W-4 form 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.

Special Considerations for Form W-4: Employee's Withholding Certificate

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 will have to wait until tax time to get the money back.

Form W-4: Employee's Withholding Certificate FAQs

What is a W-4?

Form W4: Employee's Withholding Certificate is filled out by an employee to instruct the employer how much to withhold from your paycheck. The IRS requires that individuals pay income taxes gradually throughout the year.

Do I claim 0 or 1 on my W-4?

In 2021, you can no longer claim allowances, so it no longer matters if you claim 0 or 1 on your W-4. Before 2020, claiming 1 allowances meant that if you are single and have only one source of income, you would most likely still receive a refund from the IRS at the end of the tax year because less tax was taken out of your paycheck than if you claimed 0 allowances. This means you will get more money from each of your paychecks.

How do I fill out a new W-4 form?

If you are single or have a spouse who doesn't work, don't have any dependents, only have income from one job, and aren’t claiming tax credits, provide your name, address, Social Security Number and filing status, and sign and date the form. Otherwise, you should provide information on dependents, your spouse's earnings, income from other jobs, and any tax credits and deductions you plan to claim. The IRS has an online Tax Withholding Estimator to help you determine the amount to be withheld from your pay.

Why is the 2020 W-4 form different?

For the 2019 filing season, many people who got tax refunds in previous years found that they had to pay taxes when they filed their 2018 tax return. The 2017 tax reform law reduced tax rates for many, but the IRS also reduced the amount of tax withheld from wages to reflect the tax law changes. Thus, many people did not have enough taxes withheld. The IRS introduced a new Form W-4 in 2020 to try to resolve the problem. Now, the W-4 form is no longer used to claim withholding "allowances."

What is the difference between a W-2 and a W-4?

The W-4 tells the employer how much to withhold from the employee. The W-2, however, tells the IRS what the employee earned in the previous year. Small business owners and large businesses are required to submit Form W-2 . Every employee must file a W-4.

The Bottom Line

Your employer should provide a W-4 form when you are hired. Take the time to fill out your W-4 properly. You'll avoid having to pay penalties at tax time and will keep as much of your earnings as legally possible.