Filling out a W4 is an important part of successful tax planning. A Form W4 is an Employee’s Withholding Certificate. It is an IRS form that you fill out when you start a new job. Many are unsure on how to complete these properly. In this article, we will go over what this form is and how you should be filling out a W4.
The Purpose of a Form W4
The purpose of filling out a W4v is to ensure that your employer is withholding enough income tax from your pay. This withheld amount is sent to the IRS by your employer. This amount goes towards your annual income tax bill. Which is the amount you owe as calculated by filing your yearly tax return. If you do not withhold enough, you will end up owing money when you file your tax return. Due to this, it is important that you complete your W4 carefully.
How to Complete Your W4
In 2020 a new version of the W4 was released by the IRS. These instructions will be on how to complete the new form. There are five sections in total. Each works together to calculate the total amount of taxes your employer will withhold.
Step 1: Enter Personal Information
In the first section, you will need to fill in your name, address, social security number, and filing status.
Step 2: Multiple Jobs or Spouse Works
Not everyone needs to complete this section. Only fill it out if you have more than one job or you are married filing jointly and your spouse also works. If one or both of these situations apply to you, you will need to choose from one of the three options in this section.
- Option A: With this option, you will use the IRS’ online Tax Withholding Estimator to calculate your withholding. Put the calculated amount in Step 4.
- Option B: If you choose option B you will use the Multiple Jobs Worksheet on page 3 of the form to calculate your tax withholding. Then enter the amount in step 4.
- Option C: Check the box under this option if you only have two jobs total. This will result in a default calculation for you.
Step 3: Claim Dependents
You will only need to complete this section if you have a qualifying child or relative who lives with you and whom you support financially. If this circumstance applies to you, filling out this section will help you determine your eligibility for the Child Tax Credit, as well as credits available for other dependents. To properly fill out this section, follow the instructions below.
- On the first line enter the total when you multiply your number of qualifying children under 17 by $2,000.00.
- On the second line enter the total from multiplying your number of other dependents by $500.00.
- Enter the total of the two previous lines on the third line.
Step 4 (Optional): Other Adjustments
This section allows you to let your employer know if you would like any additional amounts withheld from your income. This section may be helpful if you find yourself owing taxes year after year. By withholding additional amounts, you can reduce or alleviate your year-end tax burden. Below are instructions on how to fill out this section.
- 4(a): If you expect to earn non-employment related income that is subject to withholding and you would like additional tax withheld use this section.
- 4(b): Fill out this part of the form if you expect to claim deductions other than the standard deduction. Doing this will allow you to reduce the amount of taxes withheld from your paycheck. To help you complete this section, use the deduction worksheet on page 3 of the form.
- 4(c): By filling out this section you can specify an exact amount of additional tax you would like withheld from each paycheck.
Step 5: Sign Here
The final step is to sign your form. Your W4 must be signed and dated to be valid.
Reasons for Filling Out a W4
The reasons for filling out a W4 are simple. You will need to complete one when you start a new job or if you want to make changes to your withholdings at your current job. You may want to update your withholdings if you have a change in your marital status, have a baby, start a second job, or find you owe a large amount on your tax return.
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