What Is Form W-4?

Form W-4 Explained

A taxpayer completes their taxes online from the comfort of home.
•••

Image (c) Jamie Grill Photography/Getty Images

 

Form W-4 provides your employer with your filing status, and optionally, the number of dependents you have, and the tax credits and deductions that you intend to claim when you file your return. The information you include determines how much your employer withholds from your paycheck.

The IRS issued a revised Form W-4 for 2020 that no longer requires calculating allowances.

What Is Form W-4?

Previously called the “Employee’s Withholding Allowance Certificate,” Form W-4 is now called the "Employee's Withholding Certificate" and was redesigned to reflect that you can no longer claim personal or dependency exemptions. The form consists of five sections, and while you’re only required to complete sections one and five, completing additional sections can help your employer more accurately determine the appropriate amount to withhold.

IRS Form W-4

Who Uses Form W-4?

Your employer uses the information you enter 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 complete and submit Form W-9 because taxes aren’t withheld from payments made to them. They’re responsible for making their own estimated quarterly tax payments, using Form 1040-ES, in lieu of withholding.

Several factors influence the amount of income tax that’s withheld, including your filing status and how many dependents you have. For example, your employer would withhold more to cover your tax liability if you’re single with no dependents than if you’re married, or if you’re head of household with one or more dependents (assuming all other information is identical). Having more withheld means a smaller paycheck.

Your employer also withholds additional money to pay your Federal Insurance Contributions Act (FICA) taxes, which covers Social Security and Medicare. Social Security and Medicare taxes are statutory percentages , however, and aren’t impacted by the information you include on the W-4.

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-4V Calculating withholding from government payments

Form W-4

There are two versions of the standard Form W-4 as of 2020: the old form used in prior years, and the one that the IRS significantly redesigned for the 2020 tax year (this is the form in current use). 

Employees who already have a W-4 on file from previous years don’t need to complete the revised form unless they want to change their withholding. In that case, they must use the revised form, as must all newly hired employees. 

Form W-4 (SP)

This is a Spanish version of the standard W-4.

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 if you also want withholding from any sick pay to which you're entitled.

Form W-4V

If you receive government payments, such as social security or unemployment income, you can use this voluntary form to ask the payer to withhold federal income tax.

Where to Get Form W-4

Your employer should provide you with a blank Form W-4 to fill out, along 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 actually consists of a series of questions and instructions grouped into five steps. The instructions and worksheets attached to the W-4 form guide you through the steps.

  • Step 1 (REQUIRED): This is where you’ll enter your name, address, Social Security number, and tax filing status. 
  • Step 2: This step takes into consideration extra income from other jobs and/or your spouse’s job if you’re filing a joint tax return
  • Step 3: This step is used to estimate credits you receive for dependents. You can include the amount of other credits you anticipate receiving as well, such as education credits. Completing this step will reduce your withholding.
  • Step 4: In this step, you can include extra income (not from other jobs or self-employment) from which tax isn't withheld—this will increase your withholding. You can also include how much you intend to claim in deductions other than the standard deduction—this will decrease your withholding. If you want a specific additional amount withheld from your paycheck, you can indicate it in this step as well.
  • Step 5 (REQUIRED): This is where you sign the form.

The IRS also offers an interactive W-4 withholding calculator on its website. The calculator automatically makes adjustments if it appears that you’re eligible for tax credits, and it accommodates more than one income if you’re married and planning to file a joint return.

About Step 4 

Step 4(c) allows you to request extra withholding above what would normally be withheld from your pay, or to reduce withholding if you expect the deductions you claim to exceed your standard deduction.

You might increase how much is withheld if you owed the IRS money when you last filed your return. For example, you could divide the amount you owed by the number of pay periods remaining in the year to avoid a future tax bill: If there are 36 pay periods left in the tax year and you owed $3,000 last year, you could submit a new W-4 to have your employer withhold an additional $84 from each of your paychecks.

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

If, on the other hand, you want less withheld because you anticipate getting a refund, you can use step 4 to indicate the additional deduction amount you expect to claim (over and above the standard deduction for your filing status). With this information, your employer can calculate a new withholding amount that would leave more in your paycheck, but would reduce or eliminate your tax refund.

If You’re Exempt From Withholding

If you’re exempt from tax withholding, Form W-4 provides a space you can use to indicate that. First, confirm that you are exempt by reviewing Form W-4 instructions under “Exemption from withholding.” Then, write "Exempt" in the space below Step 4(c), and complete steps 1(a) and 1(b) and step 5. You must 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. Check with a tax professional before claiming exemption to make sure you meet the qualifications. Otherwise, you could owe a penalty.

A tax penalty can kick in if you pay less than 90% of what you owe 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.

You'll have to redo your W-4 each year to indicate that you qualify as exempt for that particular tax year. Your 2021 exemption expires as of February 15, 2022.

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 adjust your withholding.

Benefits of Form W-4

Through tax year 2017, 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 that was eliminated under the Tax Cuts and Jobs Act. The IRS, therefore, instituted a revised Form W-4 in 2020 that discontinued the use of allowances and simplified the process of filling it out.

Key Takeaways

  • Form W-4 indicates how much your employer should withhold from your pay based on information you provide.
  • You may owe a penalty if you pay too little in taxes throughout the year. 
  • Form W-4 was redesigned in 2020 to make it easier to complete. 
  • Taxpayers who worked for their employer prior to 2020 do not have to submit the revised form unless they wish to make changes.