W4 Form Explanation

The W-4 is a form from the Internal Revenue Service used by employers to determine the tax withholding for employees. The W-4 form features a worksheet to calculate the number of exemptions, or allowances, for federal tax purposes. Based on the number of allowances you claim, your employer will withhold a certain amount from each paycheck to satisfy your income tax liability. It's essential to complete the W-4 form accurately to prevent under- or over-paying your federal taxes.

Personal Allowances Worksheet

This is the section you use to calculate your allowances. Each allowance reduces the amount of tax withheld from your paychecks. Claiming more allowances than you are entitled to will result in you underpaying your federal taxes and you will have to pay the IRS the difference when you file your taxes. On the other hand, if you select too few allowances, you will overpay your taxes, resulting in a smaller paycheck and a tax refund when you file your taxes.

Withholding Allowance Certificate

Once you complete the Personal Allowances Worksheet, you transfer the results to the withholding certificate. This is the actual form submitted to the IRS. On this form you can also select to withhold additional money from each paycheck.

Deductions and Adjustments Worksheet

If you itemize, this worksheet allows you to accurately calculate your tax burden and ensure that your employer withholds the correct amount. Taxpayers often itemize if they have significant mortgage interest to write off, if they have excessive medical expenses or make numerous charitable contributions that reduces their tax liability. If you itemize and have a lower tax liability, this worksheet will ensure your employer doesn't withhold more tax than necessary.

Two-Earners Worksheet

If you and your spouse both work, or if you have two or more jobs, this worksheet helps you determine your total tax liability and ensures your employer withholds the proper amount for your tax liability. In the United States, the tax rate, or percentage of your income you pay in taxes, increases as your income increases. This worksheet allows you to combine all income and calculate the total tax liability.

Conclusion

The W-4 is a form used by employers to withhold and remit part of your earnings to the IRS. The worksheets included on the W-4 help you calculate your tax liability. Under- or over-estimating your tax liability is not a criminal act, assuming that you pay any amount due when you file taxes. Reducing the number of allowances on the W-4 will increase the amount withheld from you paycheck and likely result in a tax refund. Overestimating the number of allowances will result in a reduced withholding and you could owe the IRS additional money when you file your taxes.

References

• IRS.gov: Form W-4 (2010)

Resources

• IRS.gov: IRS Withholding Calculator