What is Form W-4?

If you’re a U.S. employee, your employer must withhold a certain amount of money from each paycheck for federal and, in most cases, state taxes. The amount withheld throughout the year determines how much tax you’ll still owe during tax season or if the IRS owes you a refund.

On your first day of employment, you decide how much federal income tax your employer can withhold by filling out Form W-4. Using the form, you can account for additional income, dependents, tax credits, and deductions to determine the right amount to withhold for your specific circumstances.

In this article, we’ll explain what a W-4 form is and how to complete it so you avoid any surprises at tax time.

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What is Form W-4?

Form W-4, also known as the Employee’s Withholding Certificate, is a standard IRS form every W-2 employee fills out upon starting employment. The form lists an employee’s tax withholding status, sources of income, dependents, and deductions—factors that the employer can use to calculate the amount of federal income taxes they should withhold from the employee’s paycheck.

Your employer can give you a paper or electronic Form W-4. Once complete, you’ll typically submit the form to your company’s HR department. Your employer will use the information provided in your completed W-4 to determine how much income to withhold for taxes and send that money, along with your name and Social Security Number, to the IRS throughout the year.

If you’ve paid more than enough through withholding to the IRS for the year, you’ll receive a credit for the amount you overpaid during tax season.

It’s essential to fill out your W-4 tax form as accurately as possible. If you don’t withhold enough, you’ll be subject to a large income tax payment during tax season, plus potential interest and underpayment penalties¹. However, if you overpay throughout the year, you won’t receive as much money on each paycheck and will need to wait for the IRS to issue you a tax refund.

The IRS updates Form W-4 annually² for language and to reflect income limits, current tax rates, and deduction amounts that may change due to inflation.

Independent contractors don’t fill out Form W-4. Instead, they use Form W-9, the Request for Taxpayer Identification Number and Certificate.

What’s the difference between Form W-2 and Form W-4?

Form W-4 instructs employers on how much federal income taxes to withhold from each employee's paycheck. Every W-2 employee must file a W-4 with their employer or human resources department when starting a new job so the organization can accurately process payroll throughout the time of employment.

In contrast, Form W-2 details an employee’s wages, withheld taxes, and the amount of any applicable benefits during the previous calendar year. Employers fill out a W-2 Form for every employee who receives a regular wage, salary, or other form of compensation. Independent contractors and self-employed workers don’t receive a W-2. The employer must send employees their W-2s on or before January 31 each year so they can fill out their income taxes.

How did the 2017 Tax Cuts and Jobs Act affect Form W-4?

Before 2020, employees could claim withholding allowances on their W-4 form. These allowances were personal exemptions that could reduce the amount of federal income tax withholdings. Using the Personal Allowance Worksheet, employees could claim several allowances, reducing their withholdings, or claim a few, increasing their withholdings.

Due to the 2017 Tax Cuts and Jobs Act³, you no longer need to calculate allowances. The Act also increased the standard deduction amount and revamped eligibility for the Child Tax Credit⁴. The IRS created a new simplified version of Form W-4 in 2020 to reflect these changes. Using the latest form, you can lower or raise your tax withholdings by claiming dependents, itemizing your deductions, or accounting for additional income.

How do I fill out Form W-4?

Form W-4 can be simple to complete, depending on your tax situation. You only have to complete two steps if you’re single without dependents, only work one job, and have no tax deductions. If your situation is more complicated than that, you have a bit more work to do.

Thankfully, there are only a maximum of five steps to completing a Form W-4. We’ll go into more detail about each step below to help you fill out your form.

Step 1: Enter your personal information

First, you’ll fill out your personal information. This includes your name, address, Social Security Number (so your payment goes toward your annual income tax bill), and tax filing status.

The IRS uses your tax filing status to determine your standard deduction, tax credit eligibility, and correct tax amount. The five filing statuses are single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with a dependent child.

If you’re a single taxpayer and don’t have other income, dependents, or deductions, you can skip to step five. Proceed to step two if you have additional information to disclose.

Step 2: Record your combined income

To ensure your withholding rate is accurate, your W-4 should include all your taxable income, like self-employment, your spouse's wages (if filing jointly), additional jobs, and freelance income. If you have multiple jobs requiring W-4 Forms, all your W-4s should match your overall tax liability.

If you have more than one source of taxable income, you can use one of three methods to determine your withholdings:

1. Use the online IRS Tax Withholding Estimator⁵ to calculate how much your employer should withhold each paycheck.
   1. To use the online estimator, you’ll need your paystubs for all your jobs (including your spouse’s jobs if filing jointly), other income information, and your most recent tax return.
2. Use the Multiple Jobs Worksheet on page three of Form W-4.
   1. If you’re married and filing jointly, the spouse with the higher-payment job should complete the worksheet. Afterward, you can keep the worksheet for your records.
3. If you and your spouse make roughly the same income and there are only two jobs between you, check box C.
   1. Your spouse should check the same box on their Form W-4.

Step 3: Claim any dependents

Next, claim all dependent children under age 17 and any other dependents on your W-4. The IRS defines a dependent as a qualifying child or relative you financially support who lives with you for more than half the year. This step helps you determine if you’re eligible for the Child Tax Credit and other dependent credits that can reduce your withholding.

You're eligible for the Child Tax Credit if you’re a single filer who makes $200,000 annually or less. Those filing a joint tax return who make a combined total of $400,000 annually or less are also eligible. In both cases, multiply the number of qualifying children under 17 by $2,000 (or by $500 for other dependents) to get your tax credit.

If you’re claiming both children under age 17 and other dependents, add the two amounts together to get your total tax credit. Once you finish, add the total amount to line three of step 3.

The following example chart shows you how to calculate the Child Tax Credit:

Only the spouse with the highest paying job should account for child tax credits on their W-4 to receive the most accurate withholding amount.

Even if you have dependents, you can decide not to claim them if you want to increase your withholding amount.

Step 4: Personalize your withholdings

In this optional step, you can list other information that may reduce or increase your withholdings. This includes “non-wage” income, itemized deductions, and any requested amount of extra taxes you want withheld from your paycheck.

The following three sections detail where you can enter additional information on your Form W-4:

1. Non-wage income: On line 4(a), list any extra income you have that doesn’t come from a job if you want to increase your withholding. This income includes dividends, retirement accounts, stocks, interest, etc.
   1. Only the spouse with the highest paying job should account for non-wage income on their W-4 to receive the most accurate withholding amount.
2. Deductions: If you claim any deductions outside the standard deduction, you can enter the amount you expect to claim on line 4(b) to decrease your withholding.
   1. If you’re single or married filing separately and expect your deductions to exceed $13,850, married filing jointly with expected deductions to exceed $27,700, or the head of household deducting $20,800, use the Deductions Worksheet on page three to calculate an estimate.
   2. Only the spouse with the highest paying job should account for deductions on their W-4 to receive the most accurate withholding amount.
3. Extra withholding: On line 4(c), list any extra taxes you want your employer to withhold from each paycheck. You may do this if you want a refund or a lower tax bill when you file your annual return. You should also include any amounts from the Multiple Jobs Worksheet in this section.

If you begin employment mid-year and work for your employer no more than 245 days that year, you have two options for your W-4. You can use the standard withholding formula. But, since this formula uses a full year of employment, you may withhold too much from your paycheck and must wait for a refund from the IRS.

Your second option is to ask your employer to use the part-year method to determine your withholding so you don’t overpay.

Lastly, you can claim a withholding exemption if you had no federal income tax liability the prior year and aren’t expecting to owe any federal tax for the current year. If you qualify, write “Exempt” in the space below Step 4(c) and only complete Steps 1(a), 1(b), and 5. You must submit a new form next tax season to claim another exemption.

Step 5: Sign and date your form

When you’ve finished, sign and date your W-4 and submit it to your HR team or payroll department. If you’re filing an electronic version of the W-4, you may be able to complete and submit it through your company’s online portal.

When should I submit Form W-4?

You must fill out a Form W-4 when you start a new job. If you don’t complete one, the IRS requires your employer to default your withholding amount to the highest rate possible. You should also submit an updated W-4 if you want to make adjustments, like if you overpaid or didn’t pay enough during tax season the previous year.

If you (or your spouse) experience any of the following major life changes, you should also update your Form W-4:

• You get married or divorced
• You give birth to or adopt a child
• You no longer claim your adult child as a dependent
• You purchase a house
• You experience a reduction or increase in salary
• You have more than one job
• You have a lot of non-wage income, like from freelance work, stocks, investment income, or interest

Lastly, if you’ve worked at the same company since before December 2020 and you’ve never updated your W-4, you may want to check it for accuracy due to the changes made by the 2017 Tax Cuts and Jobs Act.

Do I have to update my Form W-4 annually?

If you’ve worked at the same job and have no changes to make, you don’t have to fill out a new W-4 each year. Your employer can use the one you filled out when you started. If you have changes due to a major life event, you want to reduce or increase your withholdings, or you need to make a correction, you can update your form at any time.

The IRS recommends employees review their W-4 annually to ensure their information is current and they’re paying the correct withholding amount. This is especially important if you want less or more taken out of your paycheck to ensure a refund or a smaller tax bill.

Conclusion

With the new streamlined Form W-4, it’s easier than ever for most employees to decide how much federal income tax to withhold from their paychecks. But it’s still important to complete your W-4 as accurately as possible so you’re not overpaying or subject to a large payment during tax time. Remember, you can update your W-4 whenever you need to make changes.

This article provides general tax information, not advice. If you want to be sure you’ve filled out your tax forms correctly, we recommend contacting your tax professional, CPA, or other financial professional for assistance.

1. https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
2. https://www.irs.gov/pub/irs-pdf/fw4.pdf
3. https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)
4. https://www.irs.gov/credits-deductions/individuals/child-tax-credit
5. https://www.irs.gov/individuals/tax-withholding-estimator