Every time you get hired, your employer withholds a certain amount of money from your salary. This withholding money goes into the federal tax pool like Federal Income Tax or Federal Insurance Contributions Act (FICA) tax.
As the United States has a pay-as-you-go tax system, you need to pay your taxes throughout the year rather than paying in a lump sum at the end of the financial year. This practice makes every employer obliged to take a certain amount of money from your monthly salary and send it to Internal Revenue Service (IRS).
To determine how much money the employer should deduct from your salary, they furnish Form W-4 to you. This article will discuss everything you need to know about W-4 Form.
What Is Form W-4:
One of the very important documents your employer will give your upon hiring is Form W-4: Employee’s Withholding Certificate. This certificate is significant in determining how much money your employer will deduct from your paycheck.
After withholding income tax money as described by you in W-4 Form, the employer will send it to IRS.
What Is Form W-4 Used For?
If you are an employee and do not withhold a specific amount of money as a federal tax from your income, you owe a large sum of the tax to the IRS, including interest and penalties for not paying enough taxes.
At the same time, if you pay too much taxes, you will have a shoestring budget. You are giving the government the interest-free loan that you could have invested in other businesses to earn a decent profit.
At this point, you should pay heed to a balanced withholding tax to be paid to IRS so that neither you will be penalized nor will you end up tightening your budget. Form W-4 Employee’s Withholding Certificate helps you fix the amount of money you will let your employer withhold from your salary.
How to Fill out Form W-4?
Form W-4 comes as a packet of four pages.
The first page is about all the information about employees and employers. It has 5 simple steps. The other three pages are related to instructions, multiple job worksheets, and Tax table.
The latest revised Form W-4 Employes Withholding Certificate can be downloaded from the IRS website.
Filing this Form is quite easy when your taxes are simple. Let’s find how you can file your Form W-4 instantly.
1- Enter Your Personal Information
You have to fill out your personal information in step one on the first page. This information includes your name, home address, Social Security Number (SSN), and tax filing status.
2- Jobs You and Your Spouse Have
In this step, you will furnish details of all jobs you and your spouse have. It would help estimate your combined income when putting information in this step.
You have 3 options to estimate it correctly:
- Use an online estimator to calculate the specific amount that your employer will withhold
- Take help from the worksheet attached to W-4 Form in case of multiple jobs. It will work fine when you don’t want your employer to know about other sources of income you have
- You can check the box so that your employer will withhold at the default rate. This option will work perfectly when you have other jobs with the same paycheck
3- Information About Dependent
This step will require you to mention all the children under 17 and other dependents in your family.
This information helps your employer reduce the withholding to allow for your children and dependent.
Before filling this step, it is pertinent to note that either of you is allowed for child-related tax credits through withholding.
This option would work well for a high-paying job. If you and your spouse both allow child tax credit on Form W-4, you will likely not have enough withholding and end up paying additional taxes to the IRS.
4- Special Adjustments
Using this section, you can adjust your other income, deduction, and withholding amount.
Other incomes: Mentioning other incomes increases your withholding amount
Deductions: Adding deductions in this section with decrease your withholding amount
Extra Withholding: Amount mentioned in this section, we will increase your withholding amount.
As in the case of availing children-related tax credit, either you or your spouse allow the other income or deductions on Form W-4.
5- Employer’s Information
The hard part is over now. Your employer will enter his name, address, and Employer Identification Number (EIN) in this last step.
What If an Employee Doesn’t Submit a W-4?
If an employee does not give signed Form W-4 to the employer, the Internal Revenue Service allows the employer to withhold Taxes from the employee at the maximum withholding rate possible.
An employee may be subjected to the $500 penalty if they allow less tax to be withheld than is required without any reasonable basis.
2 Important Things To Know About Form W-4
1. No Need To submit Form W-4 Annually
Employees do not need to file Form W-4 every year. If you are satisfied with your current withholding rate, there is no need to submit a new Form W-4.
However, if you get a new job, you will have to complete Form W-4. It will enable your new employer how much money will be withheld.
2. Claim Withholding Exemption
You can file an exemption from withholding money using W-4 Form. The following 3 conditions should be met to qualify for exemption:
- No federal income liability was incurred in past tax year
- No federal income liability is expected in the coming tax year
- Expected income for next tax year is less than the standard deduction
There is no separate space in Form W-4 dedicated to claiming exemption. You require to claim it by writing exemption in Line 4 (c) of the Form. Learn more about eligibility of different tax deduction.
If you are too busy to fill the Form W-4 or you have any question related to it then feel free to talk to your myNITS advisor.