How to Fill Out a W-4 Form

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I remember when I got my first job and was handed a W-4. I had no idea what it was or how to go about filling out the IRS form. For starters, the whole "allowance" thing threw me off. As far as I was concerned, an allowance was something my parents gave me for doing chores when I was a kid.

I'm sure plenty of people just entering the workforce, and even quite a few experienced workers, have the same thoughts as they fill out a W-4 form. So let's go over the basics:

Why do I need to fill out a W-4? The information you provide on the form is used by your boss to figure out how much federal income tax to withhold from your paycheck.

How do I know if I'm exempt from withholding? You can take a pass on withholding if you owed no tax last year and expect to owe nothing this year, either. (This means zero tax liability for the year, not whether you owe tax or get a refund when you file.) If that's the case, simply fill out lines 1, 2, 3, 4 and 7 of your W-4 and return the signed form to your employer. Don't neglect to do this. Without a W-4 on file, an employer is required to withhold at the highest rate--as if you are single and claim zero allowances.

How do allowances work? The number of allowances you claim controls how much will be withheld from your paycheck. The more you claim, the less money is withheld; the fewer, the more of your salary is sent off to the IRS. Form W-4 includes three worksheets to help you determine the correct number of allowances.

Which worksheet should I use to calculate my allowances? Start with the basic Personal Allowances Worksheet . For an unmarried worker with only one job, no dependents and who will claim the standard deduction, the worksheet is straightforward. Claim one allowance for yourself and a second because you're single with only one job. Then enter "2" as the total number of allowances that you're claiming on line 5 of your W-4. That's it. You're done. But if you're married, have more than one job, will itemize or claim tax credits, things are more complicated. That's not a bad thing. The point is to try to match your withholding to the tax bill you'll actually owe next spring.

The two other worksheets that come with the form are designed to help you do that. Use the Deductions and Adjustments Worksheet if you expect to itemize your deductions or claim certain credits or income adjustments. Since those tax breaks will reduce your ultimate tax bill, you can use extra allowances to reduce withholding during the year. The Two-Earners/Multiple Jobs Worksheet comes into play if you and your spouse both work, or if you are single with more than one job. Those situations can affect your tax bill, too, and this worksheet will help you keep withholding in line.

If you want to get further into the weeds and refine withholding even more, you can grab a copy of IRS Publication 919, How Do I Adjust My Withholding? . It has several more worksheets to run through. For the vast majority of taxpayers, though, that's probably unnecessary.

Any special tips for married couples? Here's a key for married couples if both spouses work and a joint return is filed: Fill out a single set of the W-4 worksheets together to determine the total number of allowances you deserve; then divide allowances between the two of you on individual W-4 forms for your employers. If you double-dip on deductions or credits you could wind up being seriously underwithheld and owe a bundle to the IRS when you file your joint return.

How about tips for new grads starting a first job in the middle of the year? There is a special brand of withholding that's tailor-made for new college graduates who get their first full-time job around midyear. The part-year method sets withholding according to what you'll actually earn during the part of the year you work, rather than on 12 times your monthly salary. That can make a significant difference in how much your employer holds back from your checks. The part-year method can be used by anyone who expects to work no more than 245 days--approximately eight months--during the year. It could also pay off handsomely, for example, if you land a high-paying summer job. You must give your employer a written request that the part-year method be used. Employers don't have to comply, but if yours does, you'll get more of your pay as you earn it.

The worksheets seem complicated. Why can't I just make up a number? While you are permitted to claim fewer allowances than you're entitled to, you can be penalized for claiming more allowances than you're entitled to on your W-4.

Once I fill out a W-4 I never have to think about it again, right? Wrong. First of all, you must fill out a new W-4 each time you start a new job. But even if you don't switch jobs, you should revisit your W-4 whenever there's a change in your personal circumstances. A marriage, divorce or birth of a child can have a big impact on how much tax you could and should have withheld. Submit the new W-4 at any time of year to your employer, not to the IRS. The revisions should take effect with your next paycheck.

One very big reason that you should revise your W-4 is if you received a big tax refund from the IRS. While a refund might seem like a good thing, all it really means is that you gave Uncle Sam an interest-free loan because too much money was being withheld from each of your paychecks. Our easy-to-use withholding calculator can help you figure out how many extra allowances you should be claiming on your W-4. To use our calculator you'll need to know just three things: your filing status, your taxable income and the amount of your federal tax refund.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Taxes

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