About Withholdings on a W-4
The W-4 form is used by your employer to calculate how much money to withhold from each of your paychecks. The amount withheld is calculated by a formula based on your income and the information filled in on the W-4 form. You can't change your income, but you can adjust the withholdings listed on your W-4 form.
Other People Are Reading
-
Function
-
The purpose of the withholdings on your W-4 form is to give the employer a number to be used in the formula to calculate the amount of taxes to be withheld from your paycheck. This number represents the number of allowances you are claiming, which correlate to the deductions you intend to take on your tax return. This form puts the responsibility for this number on the employee instead of the employer.
Effects
-
The higher the number listed, the lower the amount to be withheld from the employee's paycheck. This is supposed to be related to the number or amount of deductions the employee will take when they file taxes. However, there is no way to anticipate every filing situation, so there is some leeway for establishing the proper number.
-
Time Frame
-
The W-4 form can be changed at any time by the employee subject to employer rules which are limited by law in how restrictive they can be. An employee could theoretically change their W-4 several times during the year. If the employee does not change their W-4 form, then it remains in effect until employment is terminated or the employee does change the form.
Warning
-
Claiming too many allowances will cause too little money to be withheld from your paycheck. While this sounds great on the surface, there are hefty penalties for under withholding over the course of the year, so caution needs to be taken with the number. The IRS provides a W-4 Withholding Calculator on its website to help make a more accurate calculation than the worksheet on the form provides.
Considerations
-
If a taxpayer is married and filing jointly, and one spouse makes more than the other spouse, it will be necessary for the spouse who makes less money to have his withholding increased above what the worksheet shows. This is because the employer will calculate the spouse's withholdings based only on his earnings. This will cause the wrong percentage to be used.
Size
-
The standard W-4 calculation involves listing one allowance for yourself and one for a spouse. An additional one is added if only one spouse works or you are single. Then, another allowance is added for each dependent. Another one is added if the taxpayer will claim at least $1,500 worth of child care expenses. Another is added if filing as Head of Household. Additional allowances may be added based on income an a supplemental worksheet.
Potential
-
With careful management, the allowances on a W-4 can be adjusted to meet a person's cash flow needs. For example, an employee who calculates that 7 withholdings is the right number could set her withholdings at 7 in January. When it is time to go on summer vacation, the employee could change the number to 5 for May and June and then back to 8 to make up the difference. Then, if the employee determines that there will be plenty of money withheld she could change it back to 5 for December to help with Christmas spending.
-
