What is a W-4 form?

IRS  Form W-4, Employee Withholding Certificate  , is a form that tells employers how much  federal income tax  to withhold from an employee's pay. Employees can also use this form to claim certain tax credits and to have additional amounts withheld from their pay. The employer submits this money to the IRS on their behalf.

Tax deductions appear on the employee's pay stubs each pay period. At the end of the year, their  W-2, Wage and Tax Statement  , shows the total amount paid from their pay.

What is the purpose of the W-4 form?

The goal of the W-4 Form is to prevent individuals from owing a large amount at tax time or from overpaying taxes and  receiving a lower net pay (take-home pay) each payday  .

Because the IRS requires people to pay taxes on their income gradually throughout the year, it's important to fill out the W-4 form correctly. If enough tax hasn't been deducted from a person's pay, they may owe a large amount to the IRS when they file their taxes in April, plus interest and penalties for underpayment.

If an employee does not submit a W-4, he or she  will be considered a single filer and no other adjustments will be made for him or her  .

W-4 Form for Withholding Exemption

The W-4 form can also be used to declare that a person   is exempt from  tax deductions . This means that the employer cannot withhold federal income tax from his wages . If an employee did not pay taxes in the previous year and expects to have zero tax liability in the current year, he  can claim exemption.

For example, let's say Amy is a full-time college student who only works part-time in the summer. Last year, she did not have to pay any federal income taxes because her income was low and she expects to have about the same income this year. Amy   can  claim the exemption on her W-4 form. She also knows that the exemption is temporary, and her status must be renewed each year  (if still applicable).

How to Fill Out a W-4 Form

This IRS form has several parts, but the employee is not required to fill out every part depending on his or her individual circumstances. Here are the general steps for filling out the current W-4 form:

Part 1: Personal Information

At the top of the form the employee is asked to provide key identifying information, such as:

• Name
• Address
• Social Security Number (SSN)
• Anticipated tax filing status

If the employee's name has changed (for example, due to marriage), the form   reminds them to contact the Social Security Administration (SSA) to ensure that their earnings are credited correctly.

Part 2: Working Multiple Jobs or Having a Spouse

If the employee works more than one job or is married (filing jointly) and their spouse also works, they should complete this section using the Multiple Jobs Worksheet provided.

Part 3: Claim dependents and other credits

In this section, the employee indicates the tax credits they are eligible for, depending on how many children and dependents they can claim. The  child tax credit  is up to $2,000 for each qualifying child under the age of 17, and  the credit for other dependents  is up to $500 for each qualifying person.

Part 4: Other adjustments

If employees receive significant income from sources such as interest, dividends and retirement benefits, they can choose to have additional taxes withheld. They can also enter other adjustments from the provided deductions worksheet and additional tax withholding if applicable.

How to Claim Exemptions on a W-4

The instructions on the 2023 W-4 form tell employees how to claim exempt status. According to this version, they only need to complete steps 1(a), 1(b), and 5 and write ""Exempt"" at the bottom of Part 4.

When do I need a new W-4?

An employee can change their deductions at any time by submitting a new W-4 to their employer. The IRS suggests individuals review their financial situation regularly to ensure the correct amount is deducted from their pay.

Situations in which a W-4 might need to be changed include:

• Adding a baby to the family
• Starting a Second Job
• getting married or divorced

If an employee discovers they had too much or too little withheld last year, they may also need to submit a new W-4 form.

Why did the W-4 form change?

In 2020, the IRS  removed the deduction allowance from the W-4 form  .

Instead of claiming allowances, individuals are asked to provide more direct information about their personal and financial situation (e.g., if they have dependents or another job) to determine the correct amount of tax to be deducted from their pay.

Is there a new W-4 form for 2024?

The 2023 W  -4 form  is the most current version, but the IRS recently released a draft of the upcoming  2024 W-4 form  . It's important to use the most up-to-date documents available to ensure that the information presented to your employees is recorded correctly.

Additional Information About the W-4

Here is some  general information that employees need to keep in mind while filling out this form  :

• If they are eligible for tax exemptions, they will not have to pay federal income taxes. However, other deductions still apply to their wages, such as Social Security and Medicare taxes (  FICA  ).
• Employees who submit a W-4 that results in a lower tax deduction than required  may be fined $500 .  It is recommended  to consult a tax professional or  use the IRS tax deduction estimator for assistance.