How to Fill a W-4 Form (with Guide)

When you start a new job, you start paying taxes. For your employer to withhold the right amount of taxes, you will be required to submit some paperwork- specifically a W-4 form. Formally;

A W-4 is an official tax form from the Internal Revenue Service (IRS) filled by an employee to indicate his/her tax situation to the employer. This form helps the employer to accurately deduct the right amount of money from employees’ pay-check for federal taxes.

By filling this form, you will prevent yourself from having an outstanding tax balance, and it also helps you to avoid overpaying your taxes. Some types of income are prohibited from paying tax. However, when you are an employee that earns above a certain amount, you will almost certainly need to pay taxes to the federal government. For example, in your country, if the lowest tax bracket starts from $300, all those who earn $300 and above will have to pay taxes; however, the amount withheld depends on the amount you earn. Whereas those who earn below the given amount will not pay taxes.

If the IRS withholds too much money, you will be refunded when you file your next tax return. This might sound nice, but it means that you could have had more money in your pay-check to take home.

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Changes in the New Form W-4

Now that the IRS officially rolled out the changes, the updated form should provide you with accurate means to get your federal income tax. The changes have been highlighted clearly and what you should know.

Method for determining withholding replaced

Beforehand, an employee would be required to fill a new W-4 form when he/she started a job or when he/she was required to make changes concerning their tax withholdings. The IRS replaced this method for determining the amount beginning in 2020 to make it easier for them to calculate how much to withhold from each pay-check, removing withholding allowances.

Complicated worksheets replaced

The old worksheets were designed and replaced with new withholding forms. They used the same underlying information from the old designs but with more straightforward questions.

Easy to understand

All these changes made the withholding system more accurate, and employers are now able to determine the certain amount of money to be withheld from their employee’s pay-checks. In addition to that, with the new W-4 forms, employees can understand and determine how much federal income tax they will be paying.

4 Step Process to Fill Form W-4

The new W-4 form was redesigned in 2020. Previously, you had the ability to claim your personal allowances using a W-4 form. The more the allowances you claimed, the less your employer withheld from your pay-check, while if you declared fewer allowances, your employer would withhold more from your pay-check. However, all this changed after the new redesigned W-4, where they did away with claiming personal allowances.

The new W-4 form is one page and has only 5 steps.

The four-step process will determine your withholding.

  • The first step is to provide your personal information; This includes your address, Social Security Number, and your filing status. Your filing status means that you might be filing alone(single), Married Filing Jointly, Married Filing Separately, or a Widow(er) with a dependent child. Your employer will use this information to gauge the standard deduction of federal income tax from your pay-check.
  • The second step affects people that hold two or more jobs at a time, married-filing jointly, or their spouses also work. The accurate information on the total amount of withholding will depend on the income earned from all these jobs between you and your spouse
  • This section affects people with children or any other dependents. It will provide instructions to determine the amount of dependent tax credit or child tax credit that you may be able to claim the next time you file your tax return.

In the third section, you will include the following:

Other estimated income from sources such as interests, dividends, dividends from companies you might have worked for or retirement.
Deductions you plan to take, like medical expenses, other than the standard deduction, reduce the amount of income tax you owe.
Any other withholding you want from two or more of your paychecks.

  • Make sure to end by signing your name and include the date to complete your W-4 form.

As of 2020, the revised W-4 Form aims to make the process of defining how much an employer should withhold easier. If you are single, have a spouse with no job, or you don’t have any dependents, or you only receive income from one job, and you aren’t claiming any tax credits or deductions, filling out a W-4 is simple. In the new W-4 forms, all you have to do is provide your name, a dress, Social Security Number, filing status, and then sign and date the form.

Exemption from Tax Withholding

Exempting yourself from withholding means that your employer does not withhold any of your income from your federal income tax. You can use the W-4 form to declare yourself an exemption from withholding. You can do this if you had no income tax liability in the previous year and don’t expect to have one in the current year. For example, as an employee, you are a single taxpayer who earns approximately $8000 each year. You would not be likely to pay federal income tax. This is because the standard deduction you can claim on your tax return would likely eliminate the possibility of owing tax on your $8000 of earnings.

You might have a side hustle where you earn your self-employment income, and to avoid making separate tax payments for that income, you can tell your employer to withhold an additional sum.

You can use the W-4 to restrict your employer from withholding any amount from your pay-check. This is only possible if you are legally exempt from withholding.

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Adjustments in Form W-4

Making adjustments in the W-4 form increases the accuracy, and by making these adjustments, remember that your state income tax withholding will be affected. Some of the adjustments you can make are:

Listing other income and deductions

It is advisable for you to mention any other income you might be getting from a side hustle and deduction in the W-4 form. Remember, whatever information you put down in the form determines how much tax will be withheld.

Withholding extra amount

You can also tell your employer to withhold a certain extra amount. Normally, if you had one job, your employer will only withhold from one pay-check. However, if you are handling two or more jobs at a time, your employer can withhold each pay-check, depending on the number of jobs. Withholding from two or more pay-checks helps you manage your taxes so that you can pay in time. You will have achieved your goal by reducing the amount of money you owe in terms of tax, and your refund will not be a significant one once you file your tax return the following year.

For example,

If you have two jobs, each paying a certain amount per month. After estimating your federal tax return, you find out that you owe $1000 at tax time. You may want to withhold $40 from each pay-check, bringing you close to paying the full amount you owe in annual income taxes.

Calculating Taxes

In some situations, determining the amount to be withheld is more complex. This is if you have dependents, your spouse has a job, or you have income from other jobs, or you have tax credits and deductions. There are ways to determine the total federal income tax to be withheld, and that is by using:

Tax withholding estimator (used by employees)

The IRS recommends using the Tax Withholding Estimator, available online, to provide you with the right information so that you will be sure of the right amount being withheld from your pay.

IRS publication 15-T (used by employer)

Employers use IRS Publication 15-T to figure out how much federal income tax to withhold from employee’s pay-checks.

Filing a New W-4 Form

People often change their with holdings by submitting a new W-4 to their employers. Changing your with holdings means suggesting a new amount to your employer to deduct from your pay-check as the federal income tax. This can only happen once you file a new W-4 form. Situations that can lead you to change your W-4 include getting married or divorced, having a child, getting a second job, or you might have withheld too much or too little the previous year when preparing the annual tax return. You expect your situation to be similar for the current tax year.

Suppose you start a job in the middle of the year and we’re not employed earlier that year. Make sure to request in writing that your employer use the part-year method to compute your withholding. This is if you will be employed no more than 245 days for the year. If your employer does not use the part-year method, you will a significant amount withheld. You will be forced to wait until the next tax time to get the money back. This is because the basic withholding formula assumes full-year employment.

When a significant amount of money is withheld from your pay-checks, you earn yourself a refund. This also means that you have given the government an interest-free loan. On the other hand, if you withhold a small amount of money,you will bring about an unexpected tax bill and conceivably a penalty for underpayment. Instead of going through this uncertainty each year, it is advisable to update your W-4 when you experience a major life change that affects your taxes, like when you marry, have a child, or change your income.

Tax Planning and Financial Plan

Proper tax planning makes it easier to organize your personal finances in that you will be able to know what amount to expect at the end of a given period. Tax planning should be a crucial part of your financial plan, and here are some of the best ways to deal with it.

Find a financial adviser to work with

When you start working, taxes will be one of many aspects of your financial situation. Preferably, work with a financial advisor to build a good financial plan that accounts for taxes.

Estimate your salary with tax calculators

As an employee, you could have two jobs, your 9-5 and a side hustle. You will need to pay taxes on that extra income. You can do that by either quarterly paying taxes or by having more withheld from your pay-check. To get an estimation of how much to withhold, use the federal income tax calculator.

Free W-4 Forms

W4 Form 01

W4 Form 02

W4 Form 03

    Frequently Asked Questions (FAQs)

    How do I fill out the new W-4 form?

    First, you provide your name, address, social security number, and filing status, then sign and write the date; this is if you are single, have a spouse who doesn’t work, you don’t have any dependents, you have income from one job and aren’t claiming any tax credits. If not, you should provide information on dependents, your spouse’s earnings, the income you get from other jobs, and any tax credits or deductions you have claimed or plan to claim. You will then use the online Tax Withholding Estimator provided by the IRS to estimate the amount withheld from your pay.

    What is the difference between a W-4 and a W-2?

    W-4 is a form filled by an employee that enables the employer to determine how much to withhold from the employee’s pay-check, while the W-2 tells the IRS the specific amount of money the employee earned in the previous year. In this case, small business owners and large businesses are required to submit Form W-2, while every employee must file a W-4.

    Is the W-4 form available online?

    Yes, you can get samples of a W-4 online with ease.

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