What is a W-4?
Form W-4 is the form you give your employer when you start a job. It does not set how much tax you owe. That is worked out on your tax return. It sets how much federal income tax is taken from each paycheck along the way, so that by the end of the year you have paid about the right amount. The IRS publishes the form and its instructions; this guide explains each step in plain words.
What goes in each step of the W-4?
Step 1: your details. Your name, address, Social Security number and filing status: single (or married filing separately), married filing jointly, or head of household. Your filing status chooses the standard deduction and the tax brackets your employer uses.
Step 2: more than one job, or a working spouse. Each employer only sees its own pay. Without Step 2, each job is withheld as if it were your only income, so the standard deduction and the low brackets are counted twice, and too little is taken.
Step 3: children and other dependents. You multiply the number of children and other dependents by the amounts printed on the form, and enter the total. It lowers the tax taken from each paycheck, because those credits will lower your tax for the year.
Step 4: other adjustments (optional). (a) Other income that has no tax withheld, such as interest. (b) Deductions bigger than the standard deduction, using the worksheet on the form. (c) Any extra tax you want taken from each paycheck.
Step 5: sign and date it. A W-4 without a signature does not count.
Who should fill in Step 2?
Anyone with two or more jobs at the same time, and married couples filing jointly where both work. Take a couple who each earn $60,000. On a joint return they owe about $10,040 of federal income tax for the year. If each fills in a W-4 as married filing jointly and skips Step 2, each employer takes about the tax on $60,000 alone, and the two together take only about $5,680, leaving roughly $4,360 to pay at tax time.
The form gives three ways to fix this:
- Use the IRS Tax Withholding Estimator. It is the most accurate.
- Use the Multiple Jobs Worksheet on the form, and enter the extra amount in Step 4(c) on one W-4.
- If there are only two jobs and they pay about the same, tick the box in Step 2 on both forms. Each employer then uses half the standard deduction and brackets half as wide. For the couple above, that takes about $10,040, close to what they owe.
Should I ask for extra tax to be taken?
Step 4(c) is the simplest way to fix withholding that is too low. $50 a paycheck, paid every two weeks, is $1,300 more over the year. People with income from a side job, a rental or investments often use it instead of paying estimated tax every quarter.
How do I check my withholding?
Look at the federal income tax line on a recent pay stub and compare it with the federal tax per paycheck in our paycheck calculator. The calculator works out the year’s tax with the standard deduction and no other income, then spreads it evenly. If your pay stub shows much less, check your W-4, above all Step 2. For an exact answer for your situation, the IRS Tax Withholding Estimator takes your pay stubs, other income and credits into account.
When should I update my W-4?
Whenever your situation changes in a way that changes your tax: you marry or divorce, have a child, take a second job, your spouse starts or stops work, or your other income rises or falls. A large refund means too much was withheld; owing a lot at tax time means too little was. Both are signs to fill in a new form.
Does the W-4 affect state tax?
Not usually. The federal W-4 covers federal income tax only. Most states with an income tax have their own form for state withholding, and the nine states with no income tax need none.