Posted on by bnwokedi

How to Complete Tax Form W-4

Purpose of this article: to help you feel confident in completing your Tax Form W-4

Bullet Point Summary

  • Form W-4 is the form that determines how much federal income tax is withheld from your paycheck.
  • In general, the more personal allowances you take, the less tax will be withheld from each of your paychecks.
  • This form can be updated throughout the year as your situation changes. For example, getting married and having kids during the year changes your filing status and number of dependents.
  • Given the tax reforms passed in 2018, it is vital that you review this document and ensure that you are withholding the appropriate amount. Millions of Americans faced unexpected tax surprises earlier this year.

Overview

The purpose of Tax Form W-4 is to help your employer withhold the correct amount of federal income tax from your paycheck. But if you are like most of us, you submit this form once with your employer upon being hired and never revisit it. This article will talk through why you should revisit this tax form every time your personal financial situations change.

How Does It Really Work?

In general, Form W-4 is focused on honing in on the number of “personal allowances” that you will take. The more personal allowances you take, the less tax will be withheld from each of your paychecks. Conversely, if you claim zero personal allowances you will have the most tax withheld from your take-home pay.

So, it is very important to get the right balance of personal allowances claimed. Claiming too little will mean that too much tax is sent to the government ending in a refund. But claiming too many will lead to too little tax being sent to the government ending in a possible large tax bill come April.

In order to figure out how many allowances to claim, you will need to consider the following:

1. What is your tax filing status?
(a) Married filing jointly
(b) Married filing separately
(c) Qualifying widow(er)
(d) Head of household
(e) Single

2. How many jobs do you have?

3. Do you have any dependents?

4. Will you take any credit for child tax or other dependents?

Once you gather the answers to the three questions above, you are ready to fill out the Personal Allowances Worksheet on Form W-4. Below is a screen shot of what the Personal Allowances worksheet looks like on the actual Form W-4. The next section will walk you through how to complete this form.

How Should I Fill Out Form W-4?

The following video below will walk you through how to fill out Form W-4. Please note that the assumption within this video is that you will not take itemized deductions and you will not need to fill out the Two-Earners/Multiple Jobs Worksheet on Page 4 of Form W-4.

With the new GOP tax plan, the standard deductions have increased so a lot of you may choose this route over itemizing. Always remember though, you should itemize deductions if your allowable itemized deductions are greater than your standard deduction.

[embedyt] https://www.youtube.com/watch?v=Dw8bWZsMsyc[/embedyt]

Closing

The vast majority of people will usually end up with 2 allowances (1 for themselves in Line A and 1 for their filling status in Line B-D), as the video above shows. The purpose of Form W-4 is to help ensure that you pay enough tax upfront so you don’t owe additional taxes later on in April, but this form is far from perfect as it can’t account for every single persons’ tax situation. As a result, I suggest that you always do the following at the beginning of each tax year:

1.      Use the IRS withholding calculator (see here) to calculate how much tax    you should withhold. Fill out Form W-4 with 0 allowances and withhold any additional tax needed from your paycheck by filling out Line 6.

Real example of using the IRS Withholding Calculator. Download PDF here: Mae Mae Nguyen – IRS Withholding Calculator Example.

2.      Use the Federal Income Tax Calculator (see here) from Smart Asset to further analyze your tax liability for the coming calendar year. You want to hone in on the sweet spot where you pay the correct amount upfront and neither owe nor get a refund check in April.

3.      Come see us at Blue Elephant Financial Services with any of your tax planning and tax related questions.

My hope in writing this article is that after reading this, you now feel a bit more comfortable with taxes. Filling out Form W-4 correctly will ensure a less bothersome tax season for you.