What is a W-4 Form?

If you’ve ever started a job, you’ve filled out a Form W-4. Form W-4 is the federal tax form employees fill out to allot tax withholding. Basically, this form tells your employer how much to withhold from your paychecks.

The form ensures that your employer withholds the correct amount in federal tax.  Unless you’re exempt from withholding – if your income is less than $1,050, only $350 of which is unearned income from dividends and interest – you’ll need to fill out a W-4 with each new employer.

For those who are not exempt, Form W-4 will take you through a Personal Allowances Worksheet to determine how many allowances you may claim. You’re allowed to claim one possible allowance for each of the following situations:

  • For yourself if no one can claim you as a dependent.
  • If you are single and work only one job or your second job makes less than $1,500 OR if you’re married and your spouse doesn’t work or brings in less than $1,500.
  • For your spouse, but may choose not to if they work, or if you work more than one job.
  • For each of your dependents (excluding your spouse).
  • If you qualify for head of household filer status. To qualify to file as a head of household, generally you must be unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependents.
  • If you expect to spend $2,000 on qualified child or dependent care expenses.

Child Tax Credit – Line G

There are also a few allowances for child tax credits, for those single earners making less than $65,000 ($100,000 for married filers). In this income bracket, you can take 2 exemptions for each eligible child, less 1 if you have two to four eligible kids, and less 2 if you have five or more eligible kids.

In other words, if you have one child and are in this income range, you can claim 2 exemptions for your child. If you have three children, you’ll put 5 on line G – 2 exemptions per child, minus 1. If you have six children, you’ll take 10 exemptions – 2 exemptions per child, minus 2.

In 2015, if your income will be between $65,000 and $84,000, you’ll put 1 for each eligible child, with no additional calculations.

Itemized Deductions

The second half of your W-4 considers your itemized deductions. You’ll want to have an idea how much you might spend on mortgage interest, charitable contributions, state and local taxes, and medical expenses in excess of 7.5% of your income.  If you are in a two-earner household, you’ll want to have your spouse’s salary handy. You’ll need to know the amount of both of your wages to determine if an additional withholding amount is necessary.

The additional worksheets for deductions and adjustments and two-earners or multiple jobs will walk you through other deductions you may get to take. In a multiple-earner household, you may need to subtract deductions from your overall deduction amount, to ensure that you pay enough taxes through the course of the year.

In addition to the above, you’ll need standard information like your name, address, social security number, etc.

Fill out your W-4 as accurately as possible. Claiming too many allowances can result in an inadequate withholding, which can lead to a massive tax bill at the end of the year. And no one wants to get hammered with one of those!

Claiming too few allowances can lead to a larger than necessary withholding. This is much less of a problem, as you’ll get all the extra withholding back when you sort out your taxes at the end of the year. But, you will have a little less cash throughout the year, since you’ll be giving the IRS an interest-free loan with every paycheck.

Go in with all the relevant information, and plan as accurately as possible. That way, you’ll be able to spend or invest your money as you like, throughout the year.

If you need help filing your taxes this year, you may want to consider both Turbo Tax and H&R Block.  Their free online tax software can make your tax nightmares disappear.

Published or Updated: February 10, 2015
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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