The completion of a W-4 form is very important. The amount deducted from a paycheck or the chance of getting back anything in the form of a refund depends entirely on W-4. But there is more: it's not just filling a form with a couple of boxes ticked and your name written on top. You must consider the number of jobs you hold, your spouse's job, and any extra income, credits, and tax deductions you qualify for. Therefore, this article provides you with the guide to filling out Form W-4 and how to keep more money in your paychecks.
What is a Form W-4?
Form W-4 is officially called the Employee's Withholding Certificate and is a form used by employers to calculate how much federal income tax should be withheld from your paycheck. They will then plug it into the formula each pay period to determine how much tax would likely be owed. That way, they can take away from your paycheck an expected amount of tax that matches the tax liability they expect you will have on your return and ensure that you either do not have a huge refund coming back, or a huge tax bill when you file your return.
- More recent changes which came about during 2020 would speed up the withholding process and help taxpayers get comfortable with federal income tax withholding. A new style was adopted that no longer referenced allowances based on personal exemptions revoked by the Tax Cuts and Jobs Act (TCJA) in 2017.
- W-4 is now simpler and focuses on dependents, other deductions, and other income. Its goal and modifications were meant to decrease or eliminate under-or over withholding, and to improve comprehension and completion of the form. Accurate withholding allows for tax return filers to sidestep unexpected shocks, such as a high tax payment or a large return.
What is the New W-4 Form?
- You will no longer need to estimate how many allowances to claim in order to change your withholding. The new form simply asks whether you have multiple jobs or whether your spouse is employed.
- In addition, it inquiries about the number of dependents you have, any deductions or additional withholding, and any other sources of income other than your work. The new form also grants greater privacy since you will not be required to submit the multiple job worksheet, if you are not interested in revealing to your employer that you have multiple jobs.
What Is Form W-4 Used for?
This form enables your employer to collect the necessary information from you to calculate the withholding from your gross pay for Federal tax purposes. This is based on your yearly projected tax contributions. Your withholding will then reflect on Form 1040 at year-end along with any taxes due and any tax returns.
Who Has to Fill Out a W-4 Form?
Every employee irrespective of the work nature should fill out W-4. Do this on your first day at work. If it is not done, overpayment or underpayment of taxes can happen. A common reason one needs to refile a new W-4 form is change of job or circumstances that requires one to change their withholding allowances.
How To Fill a W-4 Form?
- Step 1: Give your name, address, and Social Security number, among other personal details. Here, you will also choose your filing status-such as head of household or married filing jointly.
- Step 2: Step 2 is to be filled only if you have a second job, or if your partner is working. This phase guarantees that, taking into account all sources of income, the appropriate amount of tax is withheld. Check box 2(c) if you and your spouse both work and have comparable incomes. If not, complete this area using the Multiple Jobs Worksheet that is linked to Form W-4.
- Step 3: To modify your withholding based on the Child Tax Credit or other credits, claim the right number of dependents in Step 3. Only the spouse with the highest-paying job should complete this part if both of you are employed. Step 3 can be left empty by the other spouse.
- Step 4: Adjustments are permitted in Step 4, including the reporting of additional income (such as self-employment income), the entry of tax deductions above the standard deduction, and the specification of an additional tax amount to be withheld. You can ask for increased withholding on line 4(c) if you would like more tax to be withheld for any reason.
- Step 5: Lastly, before sending the form to your company, date and sign it.
How to Fill W-4 Form to Receive More Money?
Your possible refund and the amount deducted from your paycheck each period is impacted by your W-4 withholdings. They are related to have more return that may result from deducting more taxes from your paycheck, and vice versa.
- How to complete your W-4 so that you receive more paycheck: Adding a sum to Step 4c is the simple method.
- How to complete your W-4 in order to decrease your potential debt or receive more refund: You might increase the number on line 4b (deductions) or decrease the sums on lines 4a (other income) and 4c.
Special Considerations When Filing Form W-4
Here's a tax detail that can help you save money if you got a job in the middle of the year and weren't working earlier:
- Request in writing that your employer calculate your withholding using the part-year approach if you will be working no more than 245 days during the year.
- If you don't use the part-year method, you'll have too much withheld and will have to wait until tax time to get your money back because the usual withholding formula implies full-year employment.
Conclusion
W-4 forms must be completed by employees in order to meet IRS tax withholding rules all year long. You may owe the IRS a very high amount in April, along with interest and penalties for paying less throughout the year, if you withhold too little tax.
Your monthly budget will be more tight than necessary if you have an excessive amount of taxes withheld. Therefore, rather than saving or investing that money, you would be lending it to the government at no interest. And when you file your tax return next year, they will send you a check for the overpaid taxes.
Author Bio
