What Is Form W-4?

Form W-4 Explained

W-4 Form

Britney Willson / The Balance

Form W-4 tells employers how much they should withhold in federal taxes from your paychecks.

Learn more about how to complete a W-4 form.

What Is a Form W-4?

An employee completes a W-4 form when they're employed in a new position. You should also complete a new W-4 if you've had a life change that could impact your taxes, like getting married or buying a home.

The current W-4 form was released in December 2019. You may be familiar with previous versions of this form, which asked you to calculate a specific number of allowances. With the current version, you’re entering the same information asked for on the previous form, but it's done by answering a short series of questions and following accompanying instructions.

You can now enter your anticipated deductions, tax credits, and income for the year without calculating and converting them into a number of allowances. You can also use the new form to ask your employer to withhold more taxes than necessary without indicating why. That information is now confidential.

A picture of the 2020 W-4 form.
 The Balance

Who Uses Form W-4?

Employers use the W-4 form to determine how much to withhold in taxes, including federal income taxes, Social Security taxes, and Medicare taxes. They deposit their withholdings on a regular schedule and report them on a quarterly form.

Employees use the W-4 form to make sure employers withhold the right amount in taxes. If employers withhold too little, employees owe at tax time. If too much is withheld, they miss out on take-home income that could help pay the bills and have to wait until tax time to get a refund.

Where to Get a Form W-4

Employers provide W-4s to employees. They may be completed on paper or digitally. If a W-4 isn't completed, employers must base their withholdings on the assumption that employees are claiming the standard deduction for single taxpayers—even if they’re married or qualify as head of household—and that they have no dependents.

How to Fill Out and Read Form W-4

The first and primary page of the new W-4 includes five steps, and the keyword in three of them is “if”—such as, “if you do A, B, or C, complete this step,” and “if your income is D, multiply E by F or G.”

Completing the Form: Steps 1 and 5

The first of the five steps is the easiest. Step 1 is where you enter your name, Social Security number, address, and filing status. In fact, you can just complete this and Step 5, which is for your signature. Steps 2 through 4 are optional, assuming you want the full amount of taxes withheld from your pay based on your filing status.

Completing Step 2

Basing your withholding on only your filing status might not be ideal if you:

  • Work more than one job or have other sources of income
  • Are married and both you and your spouse work
  • Have several dependents
  • Are eligible to claim numerous itemized deductions

Basic withholding might not be enough or it might be too much to cover your tax liability in these cases.

Step 2 is dedicated to taxpayers who work more than one job and have working spouses. It gives you three options for calculating your withholding in these cases: 

  1. You can go online and use the IRS withholding estimator, and the IRS indicates that this will give you the most accurate result.
  2. You can use the Multiple Jobs Worksheet that’s attached to the W-4 form.
  3. You can check a default box at Step 2(c) if both jobs pay about the same, or if you and your spouse only work one job each and your incomes are similar.

Two of these options require doing some calculations, but at least the IRS estimator will do the hard work for you. 

Completing Step 3

This is where you let your employer know whether you’re going to be claiming any dependents, and it’s painless if you can do math in your head. You won’t even need a calculator.

Multiply the number of child dependents you have by $2,000 and enter the result. Multiply the number of your adult dependents by $500, if you have any, and enter the result. Then add the two entries together. That’s it. You’re done with Step 3.

Completing Step 4

Step 4 offers three options and is for use if you have other income sources from which taxes aren’t withheld, such as from investments or pay as an independent contractor if you have a side gig. You can simply enter the anticipated amount of this extra income in Step 4(a).

You also have the option of not divulging how much extra income you have. Remember, you’re completing this form to give to your employer to enable the company to calculate your withholding. Maybe you don’t want them to know that you enjoy an extra $30,000 a year on the side. Use Step 4(c) to enter an extra amount you want to be withheld from your pay instead. 

Step 4(b) comes into play if you’re eligible to claim a lot of itemized deductions so you’d rather itemize than claim the standard deduction at tax time. You’d also use this step if you qualify for any above-the-line adjustments to income that you don’t have to itemize to claim, like the student loan interest deduction. Now you have to deal with a worksheet again—the Deductions Worksheet, which is on page 3 of the form. Complete the worksheet and then enter the resulting number. 

There’s a little additional space at the bottom of Step 4, which is where you write “EXEMPT” if you're exempt from withholding. If this is the case, just complete Step 1 and Step 5.

Key Takeaways

  • Form W-4 tells employers how much they should withhold in federal taxes from your paychecks.
  • You complete a W-4 form when you're employed in a new position. You should also complete a new W-4 if you've had a life change that could impact your taxes, like getting married or buying a home.
  • Employers use your W-4 to make sure they're withholding the right amount in taxes. Employees use the form to make sure their employers don't withhold too much or too little. 
  • Employers provide the form digitally or on paper. 
  • Everyone must complete Steps 1 and 5. Steps 2–4 are optional, depending on your situation.

Article Sources

  1. American Payroll Association. "2020 Form W-4." Accessed Aug. 8, 2020.

  2. IRS. "Depositing and Reporting Employment Taxes." Accessed Aug. 8, 2020.

  3. IRS. "FAQs On the 2020 Form W-4." Accessed Aug. 8, 2020.

  4. IRS. "Employee's Withholding Certificate," Page 1. Accessed Aug 8, 2020.