Contributed by: KelliP, FreeTaxUSA Agent, Tax Pro
When you start a new job, your employer will give you paperwork to complete or send you a link to complete it online. One of the documents is Form W-4. How you fill out this form tells your employer how much federal income tax to withhold from your paychecks throughout the year.
Form W-4 asks for information such as your name, filing status, whether you have dependents, and whether you hold more than one job. Filling out the form accurately is important, as this will help you avoid a large balance due or an unnecessarily large refund when you file your taxes. These situations usually mean too little or too much federal income tax is being withheld from your paychecks.
The steps below explain what each part of the Form W-4 generally does. Your entries depend on your income and household circumstances.
What if I don’t want to withhold federal income tax?
If you don't have enough federal tax withheld during the year—whether by accident or by choice—you may owe money when you file. You may also owe an underpayment of estimated tax penalty, depending on how much tax you owe, how much you paid during the year, and whether an exception applies.
What if I choose to have a lot of federal income taxes taken out?
A large refund may sound appealing, but it actually means you gave the government an interest-free loan. Withholding too much leaves you with less of your money to live on throughout the year. If you have accurate withholding, you may get a smaller refund, but you’ll have more of your money to use.
Steps to filling out the W-4
Step 1: Enter your personal information
-You’ll provide your name, address, Social Security Number and filing status
💡Note: Choose the filing status you expect to use on your tax return. If this changes at any time throughout the year, update your Form W-4.
Step 2: Complete this step if you have multiple jobs or if your spouse works
You generally have three options:
a. Use the IRS estimator
This IRS tool can help you estimate how much tax should be withheld from your paycheck. For better accuracy, you’ll need your most recent paystub(s) and information about any other income. Once completed, you can use the results to fill out a new Form W-4 to give to your employer, or to enter the information directly into your employee portal.
b. Use the multiple-jobs worksheet from the Form W-4 instructions. This method can be helpful if you have more than one job, and one pays significantly more than the other, or if you prefer to calculate your withholding manually.
This step helps determine whether your household needs additional tax withholding. It’s designed to increase withholding from one job so that the combined withholding from both jobs is closer to the amount your household will owe.
If you have two spouses working, or if you or your spouse hold more than one job, complete this worksheet for the higher-paying job, and enter the resulting extra withholding on Step 4(c) of that job’s Form W-4. The lower paying job(s) shouldn't complete Step 2.
Example: You make $65,000 a year, and your spouse makes $29,000. Using the “Married Filing Jointly” table in the Form W-4 instructions, you’ll find the row corresponding to your income and your spouse’s income to determine the additional annual amount to withhold. Then you’ll divide that amount by the number of pay periods in the year and enter the result on Step 4(c) as the extra withholding amount for each pay period.
c. Check the box in Step 2(c) if you have only two jobs with similar pay. Sometimes this is the simplest option. If you check this box, it must be done for both jobs on their own Form W-4. This method generally withholds tax from the two jobs as if the standard deduction and tax brackets were split evenly between them.
💡Note: If you and your spouse both work, Step 2 is important because it can help prevent under withholding.
Step 3: Enter information here for dependents
This is where you’ll account for your qualifying children and other dependents. The form includes the income limits that determine eligibility for these credits. Complete this step only for credits you reasonably expect to claim on your tax return.
Step 4: Add any other adjustments
Use this step if you want withholding to better match your tax situation. Here you can include:
- Other income: Enter this amount if you have income that won’t have taxes withheld, such as interest, dividends, retirement income, or stock sales.
- Deductions: Page 4 of the form instructions has a deductions worksheet to help you determine the amount you may claim which will reduce your withholding. This may be helpful if you itemize deductions.
- Extra withholding: If you want an additional amount withheld from your paycheck, enter that amount in Step 4(c).
Step 5: Sign and date the form. If you're doing this electronically, you may just need to type and acknowledge the acceptance of the form entries.
💡Note: If you’re exempt from tax withholding, you can mark the box above the Step 5 section. This exemption is very rare, so don’t claim it unless you’re sure you qualify. To qualify, you must have had no federal income tax liability in the previous tax year, and you must expect to have no federal income tax liability in the current year.
💡Note: Form W-4 is updated from time to time, so be sure to review the current version of the form and its instructions carefully as you fill it out.
FAQs
When should I update my W-4?
- Filling out Form W-4 when you’re first hired typically may not be enough. It’s good practice to review the form yearly and update it if you experience a significant life change. It’s generally a good time to update if you:
- Get married or divorced
- Have a baby or add a dependent
- Start or stop a second job, or your spouse starts or stops working
- Receive a large refund and would rather have more money throughout the year
- Have a large tax bill when you file your taxes and want to avoid that in the future
- Experience a significant change in income
Can I change my W-4 after the initial hiring?
- Yes, you can change your Form W-4 at any time. To update or review your information, sign into your employee portal. If you don’t have access to an online employee portal, reach out to your Human Resources department instead.
How do I fill out the W-4 form when I'm a student?
- Are you a student who is eligible to be claimed as a dependent on your parents’ tax return? If so, you may be able to complete only Step 1 and sign Step 5. Before doing so, be sure to review your income and tax situation carefully, as you may still need to complete Steps 2 through 4 depending on your circumstances.
How do I fill out the form when I claim my child every other year?
- You’ll fill out the form based on the year for which the form applies. This means you may have to update the form every year.
- If you reasonably expect to claim the child and qualify for the related credit in a particular year, you may include the applicable amount in Step 3. This will reduce the federal income taxes withheld from your paychecks throughout the year.
- If you don’t expect to claim the child in a particular year, leave the child's amount out of Step 3.
💡Note: If your situation involves custody or a tax-credit agreement, you may want to consult a tax professional.
What can I do to not have a balance due at tax time?
- Are you expecting the same income again for the current year? If so, you can select to have more taxes withheld from each paycheck. This way, you pay toward your expected tax liability gradually throughout the year, rather than owing a large lump sum when you file.
- Check your W-4 to ensure you’ve filled it out accurately for your current situation.
Conclusion
Form W-4 helps your employer determine how much federal income tax to withhold from each paycheck. Completing it carefully can help you avoid a large balance due or an unnecessarily large refund.
Withholding is an estimate. No Form W-4 can guarantee you won't owe money or receive a refund. Review your W-4 each year and update it when your circumstances change.
Use the IRS tax withholding estimator if you need help estimating your withholding. For questions about your specific tax situation, you may want to consult a tax professional.