About W4 Tax Withholding Forms
Whenever you start a new job, one of the forms your employer puts in front of you to fill out and sign is a W4 form. This form determines how much money your employer will withhold from your paycheck for taxes by providing them with a number of deductions you are claiming. You can fill out any number you want on the form, but underwithholding can cause you big trouble down the line.
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Function
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The W4 form is a small form used by an employer to determine how much money to withhold from an employee's paycheck for tax purposes. The form allows the taxpayer to specify how many deductions she wants the employer to use in the withholding calculation. It also allows for the taxpayer to claim Exempt status, which means the employer will withhold nothing, or to withhold specific dollar amounts.
Significance
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Tax law requires that each employer withhold from an employee's paycheck an amount determined by formula to be used to pay the employee's taxes. Some states require this as well. The W4 form tells the employer what numbers to use in the formula and thus how much to withhold. This places the burden for the number on the employee and not on the employer.
Misconceptions
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Although the standard W4 form has a worksheet attached to use to calculate the numbers to be entered on the W4 form, this worksheet is optional. Many people believe that they must enter the numbers calculated by the worksheet. This is not true. Any number may be entered. However, entering too high of a number will result in too small a withholding.
Warning
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Deliberately entering a high number on a W4 form to get the employer to withhold less money from your paycheck can spell big trouble. The IRS requires that a minimum amount be withheld from an employee's paycheck over the course of the year. If this minimum is not met, the taxpayer will be liable for significant penalties.
Considerations
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When determining what number to enter on a W4 form, it can be useful to use the attached worksheet as a starting place. Filling out the worksheet gives you a base number. If you have more deductions than the standard deduction--for example, if you pay interest on a mortgage--you can enter a number that is a little higher. If you know what number you used at your last job, you can use the same number at the new job. If you and your spouse work, and one of you earns significantly more than the other, it is necessary to enter a higher number on the lower-paid spouse's W4 to have the proper amount withheld. This is because the employer cannot take the other spouse's income into account and thus the lower-paid spouse will have his withholdings set from a lower tax bracket.
Identification
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The W4 form says "Form W4" and the year in the upper-left corner. The bottom portion is the only part necessary to turn in to the employer. The form does not get filed with the IRS.
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