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Form W-4 Taxercise Questions, Answers

Paycheck Tax Withholding

Why is the W-4 so confusing? At eFile.com, we Get IT: IT is Income Taxes. To plan your next tax return, begin with the Form W-4 in order to adjust your withholding throughout a tax year. This will affect your tax refund amount or taxes owed when you e-file your income tax return. Below, find frequently asked W-4 Form Tax Withholding questions and answers: How to Taxercise your Paycheck, Tax Withholding, and Tax Return.

Help With Form W-4

Tax Withholding or W-4 planning is overlooked by most taxpayers. During tax season 2019 alone, over 113 million taxpayers received a total of $331 billion in IRS Tax Refunds. In other words, or to be more blunt about this, most of these 113 million taxpayers "stashed away" their own money with the IRS for over a year only to get that same money back the following year from the IRS in the form of a tax refund. In a way, a tax refund is a self imposed financial penalty. Having said that there are cases when the paycheck based IRS tax withholding indeed is legitimately zero or 0 and a taxpayer gets an IRS tax refund that is the result of free IRS money.

"I've been afraid of owing taxes when I file, but then I also get scared that I withhold too much taxes each paycheck. As a result, I always withheld too much in taxes that resulted in a refund."

Sam in California

On the other hand, each year, over $1 billion in tax refunds are not claimed by taxpayers. Don't let this happen to you! Complete a W-4 and understand your withholding before you e-File your return online each year and see how tax balanced you are.

Tax Refund Myth: Tax refund money is free government money or the result of "refund boosting" by tax preparation software.

Tax Refund Fact:  Tax refund money is a taxpayer's money as a result of too much tax withholding or insufficient tax planning by taxpayers.

We at eFile.com are here to help you taxercise your taxes so you get to keep more of your own money and don't owe taxes at tax return time.

W-4 Questions and Answers
What does a Form W-4 do?
A W-4 determines a taxpayers IRS Tax Withholding amount for a given paycheck and pay period. The W-4 form is a tax withholding planning form, thus you can change values until they match your tax withholding goals. In comparison, you can not or should not change values on a tax return. For example, you can increase tax deductions in order to reduce your tax withholding; this would be illegal on an IRS income tax return.
How often can you complete and submit a Form W-4?

You can complete a W-4 during your time working for an employer:

  • At the beginning of any new job, your employer will require you to submit a W-4.
  • For any existing job, you can technically submit a new W-4 between each pay period and make necessary adjustments.
Why is the Form W-4 so complicated?
Why is this W-4 designed so complicated is what we asked ourselves when we first saw the latest W-4. As a result of that and the many questions we received from taxpayers on how to complete a W-4, we created four different W-4 tools to assist taxpayers. If you prepare and eFile your tax return on eFile.com, we can even better assist you as we can review your tax return together.
How do you know what to enter on a W-4?

There are multiple pieces of information to fill in on Form W-4:

  • Most employers just ask a taxpayer to complete the W-4 without any guidance on how to complete the form.
  • The form itself makes it very difficult to know what to enter for these two main reasons:
    • The form does not factor in a taxpayer's overall tax return situation and only focuses on a few factors.
    • It does not allow a taxpayer to enter an IRS tax withholding amount to be withheld with each paycheck.
  • We at eFile.com have therefore created four free W-4 tools that will make the W-4 transparent before a taxpayer submits it.
How do you know if are withholding too much or too little in tax withholding?

Are you over or under withholding taxes? Do you receive a large refund when you filed your return or are you faced with a tax bill at the end of the year?

  • The W-4 form itself does not give you this information.
  • Even if you look at your paycheck's IRS tax withholding amount, you do not know if you are withholding enough or too much in IRS taxes.
  • One point to lean on is on your latest tax return. If you received a tax refund with your latest tax return and you don't expect your tax situation to change (current income amount, number of dependents, etc.), you can be certain you are withholding too much in taxes again unless you change your W-4 form.
  • If you owed taxes with your latest tax return and your current tax information is not expected to change (income, dependents, etc.), you most likely are not withholding enough in IRS taxes again unless you change your W-4 form.
What if your paycheck tax withholding amount is at zero or 0, could you still expect a tax refund?

Depending on your income, filing status and number of qualified dependents, your paycheck tax withholding could be zero each paycheck. At the same time your could qualify for a substantial IRS tax return refund. In most cases this is due to the Child Tax Credit or Earned Income Tax Credit. Read this chart to see cases with zero paycheck tax withholding that resulted in tax refunds: Chart of Tax Returns with zero Paycheck based IRS Tax Withholding and IRS Tax Refunds.

Where do you begin with your W-4?

Follow these simple steps to understand, prepare, and submit a Form W-4:

  1. Use the eFile.com Taxometer tool. The Taxometer will tell you which of the four free W-4 tools you should use based on your individual income circumstances.
  2. Even if you picked one of the W-4 tools, you should try others and factor in all possible scenarios.
  3. Submit the completed W-4 to your employer.
  4. Once you have submitted your W-4, check your next paycheck and look for Federal Tax Withholding amount. Then, compare that with the amount you had calculated or estimated with the eFile.com W-4 tool.
Where do you submit a W-4?

A W-4 is submitted only to your employer, not the IRS or state.

  • Once you have completed and signed the W-4 on eFile.com, it will be emailed to you. You can also email the same W-4 to your employer.
  • You do not need to submit the W-4 to the IRS.
  • Keep a copy of your latest W-4 Form per paycheck or employer for your own records.

As an employee, you can submit multiple W-4 forms if your withholding is not what you expected. You can change your withholding amount during the year to get as close to tax balanced as possible - this way, you keep more of your money during the year. Then, by Tax Day, prepare your return to see how your withholding went with a free eFile.com account.