What is a W-4 Form?

The W-4 Form is the IRS document you complete for your employer to determine how much should be withheld from your paycheck for federal income taxes and sent to the IRS. Accurately completing your W-4 will help you avoid overpaying your taxes throughout the year or owing a large balance at tax time.

Usually, the first day of a new job is when many taxpayers complete a W-4 tax form and ask themselves “what is a w-4 form?” If this is you, you’re not alone. Many taxpayers don’t really understand the definition of a W-4 form or how it affects your taxes. Maybe you take a guess at how to fill it out, or maybe a friend has advice.

W-4 Definition in Further Detail

It’s important to understand the definition of a W-4 because it is the IRS document that you complete for your employer to determine how much should be withheld from your paycheck for federal income taxes. In fact, accurately completing your W-4 and getting all questions answered can help you avoid overpaying your taxes throughout the year or owing a large balance at tax time.

The W-4 Explained…Top Questions to Consider

Failing to take the time to understand the W-4 explained in plain terms could lead to confusion. In fact, withholding too much or too little from your paycheck could lead to you paying too much or too little in taxes.

So, here are some common W-4 questions explained…

“What If I Start a New Job?”

As mentioned above, when you start a job, all employees should complete a new Form W-4. It does not change the amount of your pay that will go toward Social Security and Medicare. Those are defined amounts.

If you do not fill out a new W-4, you employer will definitely still give you a paycheck but will also withhold income taxes at the highest rate for single filers, with no other adjustments.

“How is the Amount Withheld Determined?”

The 2019 W-4 is used by your employer to determine how much income tax to withhold based on your marital status and the number of withholding allowances you claim. The newly redesigned 2020 W-4 will be used by your employer to determine how much income tax to withhold based on your marital status and any other adjustments you decide to include on the form.

“What Are Withholding Adjustments?”

For the 2019 W-4, an allowance worksheet helps you calculate the number of allowances. Generally, you can claim allowances for yourself, your spouse (if you’re filing jointly), and children under 17 for whom you can claim the child tax credit.

Additional withholding allowances are available related to credits and deductions. For example, you could add additional allowances if you itemize deductions.

The 2020 W-4 includes a multiple jobs worksheet and a deductions worksheet, along with information sections on dependents and other income. These all can help you calculate how much withholding will be withheld from your paycheck. The worksheets are designed to bring you to a zero amount owed, zero amount owing at tax time. You can still have a different amount withheld from your paycheck, however, if you prefer a larger refund.

While the calculations can seem a little complex, there are resources to help you answer any lingering questions before filling out your W-4 form. One particular resource worth trying is the W-4 paycheck tax calculator. Just plug in your information and it will help you to determine how many allowances or your preferred withholding amount to place on your W-4.

“Can I Claim 0 Allowances to Get a Bigger Tax Refund? How Can I Do This on the New W-4?”

While it’s an option to claim zero allowances on your 2019 W-4, it’s not always the preferable choice. When you default to zero allowances, the maximum amount is withheld. Depending on your tax situation, filling out your w-4 form this way could result in a big refund check, but you are essentially extending an interest free loan to the government by allowing them to hold onto your money all year.

On the new 2020 W-4, the nearest equivalent of claiming zero allowances is simply filling out Steps 1 and 5 on the form and nothing else. These steps are simply the personal information section and signing the form at the bottom. This will allow your employer to withhold based on your filing status, the tax rates, and no other adjustments.

Many taxpayers would be better off by receiving more of their paycheck throughout the year to cover personal expenses, pay down credit card balances, or by using the amounts to generate income another way, such as investing or contributing to a retirement account.

One caveat: do make sure to have enough withheld. If you do not withhold enough taxes, you may have a larger federal tax bill once you file your return.

“Should I Re-check My W-4 After I Get Married?”

It is best to revise your W-4 withholding after significant life events such as getting a new job, getting married, or having your number of dependents change – like when a baby is born or adopted or when your adult child is no longer considered a dependent. Since the amount withheld may be based, in part, on the number of people in your family and is affected by other tax credits, you want to check to make sure that the form and withholding is still appropriate.

It’s recommended that you complete a new W-4 within 10 days of any major life events.

Some taxpayers should also consider submitting a new Form W-4 because of the Tax Cuts and Jobs Act. For instance, taxpayers who previously itemized deductions may not be able to itemize. Since the TCJA passed, there are no longer personal and dependent exemptions allowed and so the withholding amount is no longer tied to them. The IRS has revised Form W-4 instructions as well as the form itself to take the tax law changes into account.

“Should I Declare Myself Exempt from Withholding?”

No, it’s not a good idea to claim you’re exempt simply in order to get a bigger paycheck.

By certifying that you are exempt, the employer would not withhold any federal income tax amounts during the year, and that would result in a large tax bill due in April. In addition to having to pay a whole year’s worth of taxes, you could also face interest, underpayment penalties and other consequences.

You may certify that you are exempt only if you meet the following criteria.

• For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability
• For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability

Most people do not meet these criteria, but if you do, then by all means claim exempt from withholding on your W-4 form. Those claiming exempt must remember to do so each year with a new W-4 form.

Did you know… being exempt is different than an exemption? The latter is a concept from before 2017 tax reform. Learn more in our post, “What is a tax exemption?”

“What If I Haven’t Withheld Enough?”

This is the good part – you can complete a new W-4 at any time to change the amount of withholding you claim going forward. If you are pretty far into the tax year, you may want to have a set amount withheld from your remaining paychecks. This will help compensate for amounts that would have been withheld earlier in the year. While it’s a more significant decrease of your monthly income, it helps ensure that you do not have a large liability at tax time. If you do need to do that, make sure to adjust the amount back at the beginning of the next year.

Here is an example to clarify this: On the advice of a friend, Jamie claimed less withholding on her Form W-4 in order to increase her take-home pay. Normally, Jamie would be able to allow her employer to withholding based on her filing status and tax rate, because she is single and doesn’t have any children. However, since she has not been withholding sufficient amounts for the first half of the tax year, she might go ahead and decide to withhold a little bit more for the rest of the year to compensate. She should also consider having a set additional amount withheld. In January, she will then complete a new W-4 leaving out the additional withholding, since she has not had any major life changes.

Have We Answered “What’s a W-4?”?

So, have we properly answered, “what’s a W-4 form” and all related W-4 questions? Even with all W-4 information explained, the topic can be a bit tricky. For information about how tax reform affects withholding, review whether you should submit a new W-4 and consult a tax pro for more help.

Make an appointment to get additional help from an H&R Block tax professional.

[RESOURCE: Use H&R Block’s W‑4 calculator to estimate your refund or balance due under your current W‑4 form.]