When you start a new job you are asked to fill out a few forms. You have an I-9, W-4 (State and Federal), and possible health insurance forms. The W-4 is one of the most confusing of them all. It is a document that the Internal Revenue Service (IRS) has every employee fill out. It tells the employer how much money to take out of your paycheck to cover federal and state income taxes. The IRS recommends submitting a new form each year, as well as any time your personal or financial situation changes regardless of your tax bracket. Some examples where you may want to adjust your W-4 are: if you get a promotion, get married, or have a baby.
There are several different areas of the Form W-4. First, you have the “The Personal Allowances Worksheet”. This portion of the form indicates how many deductions or allowances you want to claim. You are entitled to one allowance for yourself (line A). You are also entitled to one allowance for your spouse (line C) and one allowance for each dependent you report on your tax return (line D). You may also claim additional allowances if your filing status is “head of household” (line E) or if you expect to claim a tax credit for child care expenses (line F). You can also claim additional allowances if you will claim the child tax credit (line G). The total of those lines (A through G) gives you the total maximum allowances you can claim. You do not have to claim this amount. The more allowances you claim it will reduce the amount of income withheld from your paycheck, which means a bigger take-home pay. Claiming only one or zero allowances may lead to a huge tax refund but reduces your take-home pay.
Then you have the “The Deduction and Adjustments Worksheet”. This part of the form is for people who plan to itemize deductions such as their child or dependent care expenses or interest on student loans on their tax return. This is where you provide an estimation of the number of deductions you plan to claim, but don’t worry, this number does not have to be exact. Lastly, there is the “Two-Earners/Multiple Jobs Worksheet”. This section is for people with two jobs or married people who will file their tax returns jointly and both work. It calculates how much money you should withhold from your paycheck for tax purposes based on having that second income.
There is a Line 6 on the Form W-4. This is where you can have additional money taken out of each check. This is in case you have any unearned income (i.e. interest or dividends) or receive payment from freelance work since there is a good chance taxes are not automatically withheld from those payments. Simply mark the dollar amount you’d like withheld for taxes on line 6. Keep in mind, that’s in addition to your “normal” withholdings based on the number of allowances you claimed. Choosing to withhold more throughout the year can help you avoid a large tax bill when you file your tax return.
Filling out a Form W-4 can be very confusing. Take your time and read over each line. If you have any questions about filling out a Form W-4, please contact Abacus CPAs at 417-823-7171 or visit www.abacuscpas.com. Better Guidance. Smarter Decisions.