An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What Is a W-4 Form?
The IRS Form W-4, Employee's Withholding Certificate, is a form that lets employers know how much federal income tax to withhold from an employee’s paycheck. Employees can also use this form to claim certain tax credits and withhold additional amounts from their pay. The employer submits this money to the IRS on their behalf.
Tax withholdings display on employee pay stubs each pay period. At the end of the year, their W-2, Wage and Tax Statement, shows the total amount paid from their wages.
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What Is the Purpose of the W-4 Form?
The goal of a W-4 form is to prevent individuals from either having a big balance due at tax time or overpaying taxes and receiving less net pay (take-home pay) in each paycheck.
Because the IRS requires people to pay taxes on their income gradually throughout the year, it’s important to complete the W-4 form correctly. If an individual doesn’t have enough tax withheld from their pay, they could owe a large sum to the IRS when filing taxes in April, plus interest and penalties for underpaying.
If an employee doesn't submit a W-4, they'll be treated as a single filer with no other adjustments.
W-4 Form for Withholding Exemptions
The W-4 form can also be used to declare that a person is exempt from withholding. This means an employer can't withhold federal income tax from their paychecks. An employee can claim exemption if they didn't owe taxes in the previous year and expect to have zero tax liability in the current year.
For example, let’s say Amy is a full-time college student who only works part-time in the summer. Last year, she didn’t owe any federal income tax because her income was low and she expects to earn about the same amount this year. Amy can claim exemption on her W-4 form. She also knows exemption is temporary, and her status must be renewed each year (if still applicable).
How to Fill Out a W-4 Form
This IRS form contains several parts, but the employee may not have to fill out every section based on their personal circumstances. The general steps for completing the current W-4 form are as follows:
Part 1: Personal Information
The top of the form prompts the employee to give key identifying information, such as:
- Social Security number (SSN)
- Anticipated tax filing status
If the employee's name has changed (e.g., due to marriage), the form reminds them to contact the Social Security Administration (SSA) to ensure their earnings are credited correctly.
Part 2: Multiple Jobs or Spouse Works
If the employee holds more than one job or is married (filing jointly) and their spouse also works, they should complete this section using the Multiple Jobs Worksheet provided.
Part 3: Claim Dependents and Other Credits
In this section, the employee indicates the tax credits they're eligible for based on the number of children and dependents they can claim. The Child Tax Credit is worth up to $2,000 per qualifying child under age 17, and the Credit for Other Dependents is worth up to $500 per qualifying individual.
Part 4: Other Adjustments
Employees may choose to withhold additional taxes if they receive significant income from sources like interest, dividends, and retirement benefits. They can also enter other adjustments from the Deductions Worksheet provided and additional tax withholding, if applicable.
How to Claim Exemption on a W-4
The instructions for the 2023 W-4 form let employees know how to claim exemption status. According to this version, they only need to complete steps 1(a), 1(b), and 5 and write "Exempt" at the bottom of Part 4.
When Do I Need a New W-4?
An employee can change their withholding at any time by submitting a new W-4 to their employer. The IRS suggests individuals regularly review their financial situation to ensure the correct amount is withheld from their paychecks.
Situations that may require changing a W-4 include:
- Adding a child to the family
- Starting a second job
- Getting married or divorced
If an employee realizes they withheld too much or too little the previous year, they may want to submit a new W-4, as well.
Why Did the W-4 Form Change?
In 2020, the IRS removed withholding allowances from the W-4 Form.
A withholding allowance was an exemption from paying a certain amount of tax on your income. The more allowances claimed, the less tax was withheld. So, if an employee claimed zero allowances, the employer withheld the maximum amount. Too many allowances meant an individual likely owed taxes; too few allowances meant they likely received a tax refund (and had smaller paychecks throughout the year).
The IRS made this change to increase transparency, simplicity, and accuracy of the form. Allowance values were also connected to the employee's personal exemption amount, which reduced taxable income. However, the laws changed and individuals can no longer claim personal or dependency exemptions.
Instead of claiming allowances, individuals are asked to provide more direct information about their personal and financial situations (e.g., if they have dependents or another job) to determine the right amount of tax to withhold from their pay.
Is There a New W-4 Form for 2024?
The 2023 W-4 form is the most current version, but the IRS recently issued a draft of an upcoming 2024 W-4 form. It's important to use the most up-to-date documents available to ensure the information submitted for your employees gets filed correctly.
Additional Information About the W-4
Here's some general information for employees to keep in mind while filling out this form:
- If they're eligible for a tax exemption, they won't owe federal income tax. However, other deductions still apply to their paychecks, such as Social Security and Medicare taxes (FICA).
- Employees who submit a W-4 that results in less tax withholding than is required may be charged a $500 penalty. It's recommended to seek advice from a tax professional or use the IRS Tax Withholding Estimator for assistance.
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