What Is Form W-4?

Form W-4 Explained

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Completing Form W-4 and submitting it to your employer provides them with the information they'll need to calculate how much Social Security, Medicare, and income taxes should be withheld from your pay. Form W-4 provides your employer with your filing status, number of dependents, and tax deductions that you intend to claim in order for them to accurately calculate your withholding.

The goal is to get your W-4 withholding just right by answering a series of questions and completing some calculations on the form. The key is to understand what the questions and calculations on the form mean.

What Is a Form W-4?

Form W-4 is the "Employee's Withholding Certificate." It gives you some control over your tax situation. You'll enter the information that you want your employer to abide by when calculating tax withholding from your pay, such if you'd like a little extra withheld to cover other income from which taxes aren't deducted. The form includes worksheets to help you calculate the impact of these factors.

IRS Form W-4

Who Uses Form W-4?

Your employer uses the information you’ve entered on your W-4 on the Income Tax Withholding Table published by the Internal Revenue Service to determine what percentage of your pay should go to income taxes. All employees receive this form if taxes are to be withheld from their pay, regardless of whether they work full or part time.

Freelancers and independent contractors should instead complete and submit Form W-9 because taxes are not withheld from their pay.

Several factors influence the amount of income tax withheld, including your filing status and how many dependents you have. Your employer will withhold more to cover your income tax liability if you’re single with no dependents than if you’re married or single but with one or more dependents. Having more withheld means a smaller paycheck. The balance of your earnings goes to the IRS.

Your employer will also withhold additional money to cover your FICA taxes. FICA stands for the "Federal Insurance Contributions Act" and it covers Social Security and Medicare taxes, both of which are essentially insurance funds for the benefit of the disabled and elderly. These percentages are withheld from your paychecks and your employer must contribute equal amounts.

Social Security and Medicare are statutory percentages. They don't decrease or increase depending on the information you include on your W-4. They depend on the amount of your earnings.

Types of W-4 Forms

Form What It's Used For
Form W-4 Calculating withholding from salary and wages
Form W-4 (SP) For use by Spanish-speaking employees
Form W-4P Calculating withholding from pensions and annuities
Form W-4S Calculating withholding from sick pay

Form W-4

There are two versions of the standard Form W-2 as of 2020 because the IRS significantly redesigned it for that tax year. There's also the old form for previous years. Employees who don't already have a W-4 on file with their employers do not have to complete a 2020 form unless they want to change their withholding. Then they must use the new form, as must newly hired employees in 2020.

Form W-4 (SP)

This is a Spanish version of the standard W-4 to assist those for whom English isn't their first language.

Form W-4P

Submit this version of the W-4 if you want your plan administrator to withhold taxes from a pension or annuity.

Form W-4S

Your employer might ask you to complete this version of the form as well if you also want withholding from any sick pay to which you're entitled.

Where to Get Form W-4

Your employer should provide you with a blank Form W-4 to fill out, complete with its accompanying worksheets. You can also download the form from the IRS website's "Forms and Publications" page.

How to Fill Out and Read Form W-4

Form W-4 is actually a series of questions and instructions grouped into five steps. Enter your personal information in Step 1: your name, address, Social Security number, and your tax filing status. Step 5 is where you sign the form. The instructions and worksheets attached to the W-4 form guide you through Steps 2, 3, and 4, and the instructions for each are really quite clear.

  • Step 2 takes into consideration any extra income you might have because you work more than one job or you're married, filing a joint tax return, and your spouse also works.
  • Step 3 incorporates any dependents you might have into your withholding calculation.
  • Step 4 addresses any extra income you might have from which tax isn't withheld, and whether you'll be taking any deductions other than the standard deduction at tax time.

The IRS also offers an interactive W-4 allowance calculator on its website. The calculator automatically makes adjustments if it appears that you might be eligible for any tax credits that will affect your end-of-year tax liability, and it accommodates more than one income if you’re married and planning to file a joint return.

Step 4(c) allows you to request extra withholding over and above the taxes that would normally be withheld from your pay. You might do this because you want to correct your existing withholding.

For example, you can divide how much you ended up owing by the number of pay periods remaining in the year if you complete your tax return by April and realize you owe money. Let’s say you owe $3,000 and you’re paid weekly. There are 36 weeks left in the tax year.

Based on your current W-4—which assumes your pay stays the same as last year—you’ll be running at about an $83 deficit for tax withholding on each paycheck during that time period. You can ask your employer to withhold an additional $83 from each of your paychecks going forward through the remainder of the year so you shouldn’t owe money again come next April.

This option should only be used as a quick fix and a temporary remedy until you get your W-4 completed correctly, and you’ll want to do this as soon as possible.

You can take the same precaution if you suddenly come into extra money. Ask your employer to withhold a little extra to accommodate that additional income. You can also adjust your W-4 at any time simply because you got it wrong last year. You don’t have to wait for a new tax year to roll around.

You can instead make estimated tax payment to the IRS using Form 1040-ES and leave your employer out of it.

A few individuals are exempt from tax withholding and Form W-4 provides a space that these taxpayers can use to indicate that this is the case. Write "exempt" in the space below Step 4(c). Then, complete steps 1(a) and 1(b), and sign the form in Step 5. You must still complete and submit the form even if you're exempt.

You might be exempt if you had absolutely no tax liability last year and you expect to have none this year. This means you received a refund for every dime that was withheld from your pay last year and circumstances haven't changed so the situation will likely repeat itself this year.

Check with a tax professional first before claiming that you're exempt to make absolutely sure you meet these qualifications. Otherwise, you could end up owing a tax penalty.

You'll have to redo your W-4 each year to indicate that you qualify as exempt for that particular tax year. For example, the 2020 exemption lapses or expires as of February 16, 2021.

How to File Form W-4

You don't have to file Form W-4 with the IRS. Simply complete it and give it to your employer. You must do this when you begin working for the company, but you can also submit a new one if your circumstances change or you otherwise want to tweak your withholding. Any changes should show up in your take-home pay pretty much immediately.

Benefits of Form W-4

Previously, you could claim withholding allowances to reduce the amount of federal income tax withheld from your wages, but these allowances were tied to the personal exemption, which was eliminated under the Tax Cuts and Jobs Act in 2018. The IRS, therefore, instituted a revised Form W-4 in 2020 that discontinued the use of allowances and simply asks you for some information instead.

The IRS has said that the 2020 version "reduces the form's complexity," and it is indeed a bit simpler to complete compared to understanding and tackling the old allowances.

Key Takeaways

  • Form W-4 gives you some control over your tax situation. It effectively allows you to tell your employer how much you want withheld from your pay for taxes.
  • A tax penalty can kick in if you pay less than 90% of what you the IRS through withholding or estimated tax payments, so it’s important to get the W-4 calculations right. An exception exists if you owe less than $1,000.
  • Form W-4 was redesigned in 2020 to make it easier to complete. Workers who worked for their employer prior to 2020 don’t have to submit the revised form. Withholding will continue based on the older form they submitted before 2020. 

Article Sources

  1. IRS. "(Circular E), Employer's Tax Guide." Page 21. Accessed June 13, 2020.

  2. Social Security Administration. "What Is FICA?" Accessed June 13, 2020.

  3. IRS. "FAQs on the 2020 Form W-4." Accessed June 13, 2020.