When an employee starts a new job, the IRS requires he or she fill out a W4 Form. The four-page document allows the employee to calculate the correct withholding allowance -- how much money their employer should withhold from their paychecks to cover federal taxes.
The withholding allowance for an employee corresponds with the number of dependents the employee claims and may change as circumstances change in the employee's personal life. The allowance shifts when someone gets married or divorced, has children, or is no longer claiming a child as a dependent. If an individual does not complete the W4 Form correctly, he or she could end up paying too much into their taxes over the year or, worse, underpaying and ending up with a balance owing, come tax season.
If you intend to file exempt from tax withholdings, you first must make sure you are qualified to do so, and these qualifications change quite frequently. According to the IRS, you can claim an exempt status if you had a right to a full refund of all federal income tax that was withheld during the year of 2017 because you had no tax liability. Additionally, you will be expecting a refund of all federal income tax that is withheld for the 2018 tax year because you do not expect to have a tax liability. If you meet both of these conditions, you can write exempt in box seven on the W4 Form.
The first two of the pages on the W4 form provide general information and instructions. Pages three and four include the Personal Allowance Worksheet -- which you do not need to submit -- along with the deductions, adjustments and the Additional Income Worksheet, the Two-Earner/Multiple Job Worksheet, and the two Tax Tables.
General information and instructions appear on page one. Here, the employee learns how to complete the form properly. The Employee Withholding Allowance Certificate also appears on page one. This is the portion that needs to be completed and returned to your employer. The other pages will assist you with the calculations for filling in box five and six of the form. The other sections, boxes one through four, are pretty self-explanatory -- you just enter your name, social security number, home address, marital status and check the box if your last name is different on your Social Security card. After completing the worksheets, enter your answers in boxes five and six. Finally, sign and date the bottom of the form and give it to your employer.
Page two is a continuation of page one -- more instructions and general information. This page essentially provides more detailed information about what you need to do to complete the form accurately. It also includes information and instructions about how to use the Deductions, Adjustments and Additional Income Worksheet and the Two-Earners/Multiple Jobs Worksheet, and has some instructions for your employer.
The Personal Allowance Worksheet appears on page three. You’ll keep this worksheet for your records and can use it to figure out how many dependents you'll be claiming and to calculate your withholding allowances. You will need to complete this section before you can complete the W4 Form in its entirety. Add the information from this area to lines A, B, C, and D. Child tax credits, credit for other dependents, and other credits will also be calculated on this form and added to lines E, F, G, and H.
The Deductions, Adjustments and Additional Income Worksheet is for individuals who want to itemize their deductions. In other words, if you plan to file a Schedule A with your individual tax returns, then an estimate should be provided. If you plan to make other adjustments to your earned or unearned income, list that information in this section as well.
You may need to use the Two-Earners/Multiple Jobs Worksheet based on the information you gave on line H of the Personal Allowances Worksheet. This is where you will indicate if you had more than one job at any given time during the tax period, or if you are filing jointly with a working spouse. Otherwise, if it is not completed, you might not have enough taxes withheld and will owe the IRS when you file your annual tax returns.
The provided tax tables help you complete lines two through nine based on which spouse makes the most money. Use table 1 to record wages from the lowest paying job and table 2 to record wages from the highest paying job, then transfer the correct amounts to the official W4 form.
Now that you've completed the worksheets, you can add the calculated answers to lines five and six if you'd like to have any additional money withheld from your check. There’s no need to complete boxes eight, nine or ten. Your employer will complete that section. Double check that your total allowances claimed match the amount on your paystub. After signing, be sure to keep a copy of the form for your records.