W4 Form Explained
The purpose of the federal W4 Form is to help your employer determine how much to withhold from your paycheck for federal income taxes. As a general rule, section 1441 of the Internal Revenue Services tax code provides that employers withhold 30 percent of employee income for federal tax purposes. However, there are a number of exemptions that you can file depending on your family circumstances, and filling out a W4 will make that determination.
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Function
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The IRS W4 Form determines what amount your employer should withhold from your wages in order to pay federal taxes. If your tax withholding does not match your tax liability, then one of two things could happen: you can have too much withheld from your paycheck, which would result in a refund when you filed your tax return, or your withholdings would be beneath your tax liability, which would cause you to owe taxes to the government on April 15. Therefore, it's important to fill out the W4 Form worksheets and determine exactly what your withholding status should be.
Exemptions
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There are several general scenarios for your tax exemption status. While this information may give you an idea of how many exemptions you can claim, you still need to fill out the personal allowances worksheet to know for sure. A single individual with one job, no dependents and whom no one else can claim as a dependent can likely claim two exemptions. If you're married, you can claim your spouse as an exemption if he/she does not work. You also get an exemption for each dependent you have, which includes your children or any qualifying relatives who are dependent upon your income. Additionally, for those with an income of less than $61,000 ($90,000 for married couples filing joint taxes) you get an additional two exemptions for each child as a tax credit.
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Time Frame
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Tax experts recommend that you review your W4 Form at least once a year to make sure that your employer withhold the correct amount of taxes from your paycheck. Situations change regularly so it's important to recalculate your status. For example, if you're married and were previously filing taxes separately, but decided to file jointly this year, then you need to revise your W4 Form to reflect that. Another example of a situation that requires an adjustment to a W4 Form is when you have a child. Both situations are likely to lessen the amount of taxes withheld from your paycheck.
Considerations
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You may be able to file "head of household" status and, therefore, qualify for less income tax withholdings. To qualify as "head of household" you must be unmarried or legally separated, must use more than half your annual income to support your household, and must have a qualifying dependent (child) or relative living with you for more than half the previous year or a child/relative that is dependent upon your income, though not necessarily living with you (such as a parent in a nursing home or child in college).
Non-Resident
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If you believe you are exempt from certain tax withholdings as a non-resident alien, then you should fill out Form 8233 to accompany your W4. Form 8233 helps you to determine whether you are exempt from withholdings, such as non-resident aliens working in the United States, or a resident of a tax treaty country working in the United States (such as Guam or Puerto Rico). However, its important to note that you cannot claim exempt from federal tax withholdings if your income is greater than $950, including more than $300 of unearned income (interest or dividends), or someone else claims you as a dependent on his or her tax return.
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