What is IRS Form W-4 and How to Fill it Out
IRS Form W-4 is a necessary form for changing your withholding limits. Withholding is when your employer will keep a portion of your paycheck for the purposes of using it to pay your tax bill at the end of the year.
Smart taxpayers will take advantage of the W4 withholding calculator to ensure they don’t get hit with a large tax bill they can’t pay the following spring.
Here’s what you need to know about Form W-4.
Table of Contents
What is Form W-4 in a Nutshell?
Form W-4 is essentially an official instruction to your employer to withhold part of your paycheck for tax purposes. Your employer is then responsible for sending that withheld paycheck to the IRS to pay off some or all of your tax bill.
A record of this is sent to you via Form W-2. Your employer will mention how much was withheld, as well as other things.
How Do I Complete Form W-4?
The chances are that you’ll complete one of these forms when you start a new job. But you are able to fill out a new W-4 form any time you like. This can be downloaded from the IRS website. Just complete it and give it to your payroll or human resources team.
You’ll need to supply your name, address, your marital status, and all the usual basic personal information the IRS demands. The difficult part is deciding on your claimed allowances.
There are instructions that come with Form W-4 to help you work this out. The more allowances you decide to claim, the lower the amount of tax deducted from your paycheck.
What’s the Best Strategy for Filling Out My W-4 Form?
If you were surprised by a huge tax bill in April, you need to increase your withholding limits. This will enable you to lower your bill the following April. But you will also receive less money from your employer in your paycheck.
On the other hand, if you were lucky enough to get a large refund last April, it means that you need to reduce your withholding. Essentially, by withholding more than necessary, you’re loaning the government your money interest-free.
4 Smart Tips for Dealing with Form W-4
- Are You Exempt from All Withholding?
If you happen to be exempt, your employer won’t take a cent from your paycheck to withhold for Federal tax purposes. They will still remove Medicare and Social Security from your paycheck, but that’s another issue entirely.
To be exempt, two things must be true.
First of all, you need to have received a refund of all Federal tax withheld by your employer during the last financial year because you didn’t have any tax liability.
The second thing that has to be true is you expect the same thing this financial year.
- Invoke Strategy When Claiming Personal Allowances
Your withholding limit largely depends on your income and the information you add to your W-4 Form. There are three main influencing mechanisms:
- Your marital status.
- The number of allowances you claimed for withholding.
- Whether you decide to allow your employer to withhold extra money.
The more personal allowances you have, the less money your employer will withhold from your paycheck.
There are a number of things that could lead to you receiving an allowance, including being married, having kids, holding the head of household tax filing status.
Yes, it may be tempting to claim every allowance you can, but this is often not a good idea. This is only a smart move if you have a lot of deductions and losses to balance out that increased income.
Messing this up can lead to a big tax bill in April.
- Be Willing to Change Your Withholdings Regularly
There’s nothing wrong with changing your withholding limits. If you want a bigger refund, you might reduce the number of personal allowances you’re claiming. Once you get your next pay stub, you can come up with a figure for how much is going to be withheld during this tax year.
To add an extra amount to the amount withheld, just enter it on Form W-4, line six.
- If Your Circumstances Change File a New W-4
Life happens, and circumstances change all the time. What a lot of taxpayers don’t consider is their withholding. If a major life event happens to you, you may need to make changes.
For example, you may need to withhold less because you had a child, you bought a house, or you received a large pay cut.
You may need to withhold more if you got divorced, got a big raise, or you recently started your own part-time business outside of work.
Always consider how much you need right now and what your tax bill may look like at the end of the year.
PUT OUR W-4 CALCULATOR TO WORK FOR YOU
Use H&R Block’s W‑4 calculator to estimate your refund or balance due under your current W‑4 form. Our withholding calculator will also show you the impact of allowances on your refund and take-home pay.
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