All U.S. employees and employers need to understand IRS Form W-4.
Form W-4, Employee’s Withholding Certificate, determines the amount of federal tax an employer withholds from an employee's paycheck.
Every employee who receives a paycheck must complete Form W-4. It’s necessary to complete one when starting a new job. It’s a good idea to update it to reflect life changes like marriage or having children. Employees can also adjust their withholding for more precise tax management using Form W-4.
Proper completion helps ensure the right federal tax withholding, which affects year-end tax refunds or tax liabilities.
What Employers Need to Know About Form W-4
While the employee fills out Form W-4 based on their financial situation, employers also have important responsibilities.
Employers Only Section
There is a small section at the bottom of page 1 labeled Employers Only. This is where employers or HR representatives of the employer need to enter:
- The name and address of the company.
- The worker's first date of employment.
- Your Employer Identification Number (EIN).
Employer Responsibilities
In addition to completing the Employers Only section, employers are also responsible for:
- Maintaining a completed, signed W-4 on file for each employee as soon as they start work.
- Accurately recording the information provided in your payroll system.
- Correctly calculating, filing, and depositing the employee portion of any federal taxes to the IRS along with the employer portion of the taxes.
In addition to those responsibilities, employers can help employees complete Form W-4. They should avoid giving tax advice. As an employer, you can:
- Make sure to provide all pages of the Internal Revenue Service (IRS) Form W-4, including the instructions.
- Share helpful resources, such as the IRS Tax Withholding Estimator, suggesting the employee refer to their previous year’s tax return for information, or recommend they contact a licensed tax professional for guidance.
What Employees Need to Know: How to Fill Out Form W-4
Employees should take care when completing or updating Form W-4. Mistakes can lead to significant issues, like unexpected tax bills or penalties.
If too little tax is withheld, you could owe money at tax time. If too much is withheld, you might receive a larger refund but have less money in each paycheck.
An accurate W-4 helps you align federal income tax withholding with your current tax situation so you can refine your financial planning throughout the year.
Here are steps to help employees fill out Form W-4.
Step 1: Personal Information
Provide your full name, address, and Social Security number.
Then select your filing status. This required information affects your tax withholding.
You can choose from
- single or married filing separately
- married filing jointly or qualifying surviving spouse
- head of household
Step 2: Multiple Jobs or Spouse Works
In this step, indicate if you hold multiple jobs or if your spouse works. This step is important to calculate correct withholding. Choose the box that applies to your situation.
You can use the IRS tax withholding estimator to help you figure out how much federal income tax you want your employer to withhold from your paycheck or to see how withholding might affect your refund, take-home pay, or tax due.
Step 3: Claim Dependents
In this section, you can claim any dependents. This can impact how much tax is withheld from your paycheck. Dependents can include children or qualifying relatives.
The correct dependent count reduces the withheld amount and increases your take-home pay. Make sure to only claim dependents to which you’re entitled, as this affects your deductions and tax credits, such as the Child Tax Credit.
Step 4: Other Adjustments
In step four, you can account for any other adjustments. If you have additional income, you can report it here. This may include interest or dividends that are not from jobs.
You can also add deductions beyond the standard deduction. Here you can customize withholding to suit your specific financial need.
Step 5: Sign Your W-4
Signing your W-4 certifies the form's accuracy under penalty of perjury. Your employer requires a signed form to process it.
An unsigned form is considered incomplete and can delay the right withholding. Take time to review your entries before signing the form to make sure it matches your situation.
Understanding W-4 Exemptions and Adjustments
Before 2020, taxpayers could claim exemptions on their W-4. That is no longer the case. Now, employees must manage their withholding by adjusting other factors, such as dependents or additional income.
Instead of exemptions, taxpayers should focus on the Other Adjustments section. This section offers flexibility to adjust withholding to better match your tax situation. You can note additional income or extra withholding here. Careful use of this section can help prevent overpayment or underpayment of taxes.
Common Mistakes to Avoid on Form W-4
Incorrectly filling out Form W-4 can lead to tax issues. Some common mistakes include:
- Not updating your form after life changes, like getting married.
- Miscalculating the number of dependents.
- Not accounting for additional income.
Each of these can affect your tax withholding.
When to Update Form W-4
Employees should review their Form W-4 each year. They should also revisit when experiencing a major life change like marriage, divorce or the addition of a child. These all can affect withholding.
A new job, promotion or significant increase in wages can serve as an excellent prompt to review and update Form W-4. This can help prevent unpleasant tax time surprises.
Frequently Asked Questions
Does an employee need to complete a new W-4 every year?
You do not need to complete a new W-4 every year. It is good practice to review your W-4 annually. For the most accurate withholding, you should complete a new one when your financial situation changes, such as marriage, divorce or a significant change in wages. Employees who claim exemption from withholding must complete a new W-4 each year.
Can I claim exempt from withholding?
You can claim an exemption from withholding if you meet specific criteria set by the IRS. This is outlined on the instructions page of Form W-4.
What if an employee claims exemption from withholding?
If an employee claims exemption from all income tax withholding, they must complete Form W-4 annually. Form W-4 provides details on the criteria to claim exemption on the instructions page.
What if I made a mistake on my Form W-4?
If you made a mistake on your Form W-4, submit a new one to your employer as soon as possible.
How does Form W-4 impact FICA taxes?
Form W-4 has no impact on FICA taxes. The employer is responsible for withholding the employee’s share of FICA based on the amount of wages subject to this tax, even if the employee claims exemption from tax withholding.
Simplify Payroll and Tax Management
You’re an expert in your field. You don’t need to be one in payroll and payroll tax management. The right payroll service provider can help you stay focused on your business, customers and employees.
Have questions? Connect to see how we can help simplify your small business success at SurePayroll® By Paychex.
* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.
