A properly
filled out W-4 form is the first step in tax preparation and it directly
affects the size of your income tax bill. However, for many this form can feel
overwhelming and confusing. Here are some basic guidelines for filling out the
W-4 to maximize your paycheck and your tax return.
A W-4 form is
an IRS document filled out by anyone that is employed and receives payroll
income. It is usually filled out when someone is newly employed, or when they
need to change information regarding their paycheck. The form tells the
employer how much of your paycheck should be withheld for taxes. The IRS wants
you to pay your taxes “as you go” instead of waiting until you file your annual
tax return to pay. The W-4 allows that to happen.
One of the
first questions is “Am I exempt?” This asks if you are exempt from paying
taxes. The answer to this is question is that you probably are not exempt.
However, if you think you will earn very little money, and therefore don’t
expect to owe income taxes, you may qualify.
Following the
exemption question there are three worksheets to address:
- Personal Allowances
- Deductions and Adjustments
- Two-Earners/Multiple Jobs (for people with more than one job or married people in which both work).
Personal Allowances Worksheet
The Personal
Allowances worksheet is for everyone. The Personal Allowances represent your
deductions. The more deductions you claim, the less money will be withheld from
your paycheck. Follow the directions entering in numbers in boxes A-D. Box B
and C give you options for entering numbers. Box D asks for the number of
dependents. Sometimes we don’t know exactly what our tax situation might be
like, and it is difficult to know what number to enter. Remember that each allowance claimed affects the amount withheld from
your paychecks. You will receive a tax refund if you don’t claim enough
allowances and therefore overpay your taxes throughout the year. If you claim
too many allowances you may owe the IRS money on your income taxes. If
you owe more than $1,000 you also have to pay a penalty. Make your best
estimate for accuracy and remember that the allowances can be adjusted later as
needed.
Some examples
might be:
Single, one
job, no dependents: SINGLE, ONE ALLOWANCE
High school or
college student, single, claimed by your parents on their taxes: SINGLE, NO
ALLOWANCES
Married, three
children, spouse does not work: MARRIED, 5 ALLOWANCES
Deductions and Adjustments Worksheet
The Deductions
and Adjustments worksheet is only for those who expect to have deductions for
the year that will lower their taxable income. This can help to ensure that
there is not excess withholdings. The worksheet can seem complicated, so the
IRS has an online calculator that can help you determine what to enter at https://apps.irs.gov/app/withholdingcalculator/index.jsp
Two-Earners Worksheet
The Two-Earners
worksheet is for households with more than one income. The extra income may
push you into a higher tax bracket, so the IRS wants to ensure you have enough
withheld to avoid the penalties.
Final Steps
When you have
finished with the worksheets, you will fill out the informational portion of
the W-4 that includes the standard name, address, social security number and
tax filing status. You will then enter in the totals from your worksheets. From
there, you will give the form to your employer and get to work! If the W-4 is
filled out accurately, you won’t owe any additional tax when you file your
return (and you may not receive a refund either). Update your W-4 with your
employer whenever life events change your situation, such as marriage,
childbirth, child leaving the nest, etc. Always consult a qualified tax advisor with
questions.