If you’ve ever started a job, you’ve filled out a Form W-4. Form W-4 is the federal tax for employees to 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 the standard deduction - you’ll need to fill out a W-4 with each new employer.
The TCJA (Tax Cuts and Job Act) got rid of the Personal Allowances Worksheet in 2020, so you no longer have to worry about filling that out.
The first part of the form is basic information, such as your name, address, social security number, and filing status.
Multiple Jobs or Spouse Works
If you have more than one job, or if you’re married, filing jointly and your spouse also works, you can check the box indicating that. If you don’t want to disclose to your employer that you have more than one job, you can leave it blank. You’ll fill out a W-4 for every employer you have; the IRS says your withholding will be most accurate if you fill in the information based on your highest paying job.
If you do have more than one job, complete steps 3 and 4 on only one W-4 form.
Child Care Tax Credit
If you are single and make $200,000 or less, or married filing jointly and make less than $400,000, you are eligible for the Child Care Tax Credit. This is very straightforward: multiply the number of qualifying children you have by $2,000 and enter it in the first line. Then multiply the number of other dependents you have by $500 and put that on the next line.
Who qualifies as an “other dependent?”
- dependents who are 17 or older
- dependents who have individual taxpayer-identification numbers
- dependent parents or other qualifying relatives supported by the taxpayer
- dependents living with the taxpayer who aren’t related to the taxpayer
The sum of these numbers goes on line 3.
Step four considers other income, not from jobs, such as dividend interest income, retirement income, and other interest.
If you want to reduce your tax withholding, you can list your itemized deductions on the Deduction Worksheet (page three of the same form) and enter that amount on the next line. You’ll want to have an idea of 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.
Lastly, there’s you can enter how much additional tax you want to withhold every pay period. Why on earth would anyone want more tax withheld? If you don’t have enough taxes withheld by your employer(s), it could result in you paying too little tax, which could result in a big tax bill come April.
After this step, you sign the form and you’re done.
Fill out your W-4 as accurately as possible. Claiming too many allowances can result in 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.
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