How to Change W-4 Tax Withholding
The W-4 Employee's Withholding Allowance Certificate is used by your employer to withhold federal income tax from your paycheck, and is one of the first forms you'll complete when joining a new company. You'll want to change your W-4 if your financial circumstances change, for example, if you get married, divorced, have a child, begin working at more than one job or buy a home. The IRS provides guidance in the W-4 package to help you figure out how many allowances to claim, and it also provides an easy-to-use withholding calculator on its website.
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Instructions
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Fill in the W-4
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Download the W-4 package from the IRS website, or request one from your payroll or human resources department.
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Using the personal allowances worksheet in the W-4 package, determine how many allowances you will claim. The more allowances you claim, the lower the amount of federal income tax is withheld from your paycheck.
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Review the Deductions and Adjustments Worksheet and the Two Earners / Multiple Job Worksheet to determine if you should complete them. The Deductions and Adjustments Worksheet can reduce the amount withheld due to circumstances that you estimate will reduce your tax liability. The Two Earners / Multiple Job Worksheet can increase your withholding to account for the higher income you'll earn from multiple jobs or workers in your household.
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Complete the W-4 form, printing your name, address and Social Security Number.
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Check the appropriate box indicating marital status and whether you want withholding done at the "married but withhold at the higher rate for single individuals" option.
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Include the number of allowances calculated on the personal allowances worksheet and document any additional amount you want withheld from your paycheck. Have additional money withheld from your paycheck to avoid owing taxes at year's end.
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Write "Exempt" on line 7 if you want to claim an exemption from tax withholding. You can claim exempt status if you received a full refund of federal income tax last year because you had no liability, and expect the same this year.
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Sign and date the W-4.
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Make a copy of the completed form for your records.
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Give the original to your employer who will update your payroll records.
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Tips & Warnings
Some people use their W-4 withholding as a means of savings. But The Motley Fool investment site notes that excess withholding is actually an interest-free loan to the U.S. government. By exercising financial discipline, you can invest that excess withholding during the year and earn a return on your money.
Estimate your tax liability and withholding amounts carefully because the IRS levies a penalty on the underpayment of tax.
