What is a W-4 or Tax Withholding Tax Form?

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At efile.com, we have broken down everything you ever wanted to know about the W-4 form into the following four pages:

  1. What is a W-4? (this page)
  2. Why do I need to complete a W-4 form?
  3. How and what do I need to complete a W4?
  4. The Free W-4 Taxometer Tool

What Does "W-4" Mean?

It might mean:

  • Something you get working with the same company for four years? OR
  • A whore for four bucks? OR
  • A new brand of organic shampoo? OR
  • A place to enter your dependents on a tax return?

Actually, it is none of those things! While it is most likely that the "W" in W-4 stands for "withhold" or "withholding", we do not know what the "4" means (or why it is there in the first place!).

However, we do know that the W-4 is a form used to determine the amount withheld from your paycheck and affects how big your refund is, or how much tax you owe, when you file your tax return on Tax Day.

Consider this common myth about tax withholding:

Thumbs Down Tax Myth: A Taxpayer has no control over a tax refund or taxes owed amount on a tax return.

Thumbs Up Tax Truth: You can change your tax refund or taxes owed amount by adjusting your withholding on a W-4!

Want to learn more about the W-4? Everything you need to know is right here!

Seriously, What is a W-4?

It is a tax form that you complete and submit to your employer (not the IRS) for federal tax (and some state tax). It tells your employer how much federal and/or state tax you wish to have withheld (or taken out) each pay period. Withholding is great because it keeps you from paying all your taxes at once when you file your annual tax return. Think of it as a "pay-as-you-go" system!

Why Do I Have to Complete a W-4 Form?

There are two reasons you will need to fill out a Form W-4:

1. Your employer is required to obtain this form for payroll purposes.

2. You can use the form to control how much tax dollars are taken out of your paycheck. The amount that is taken out from your paycheck will determine your tax refund or taxes owed by Tax Day. 

Learn more about why to adjust your paycheck withholding.

When Can I Complete a W-4 Form?

Consider this common myth about when to complete a Form W-4: 

Thumbs Down Tax Myth: You can only complete a W-4 when you start a new job.

Thumbs Up Tax Truth: You can complete a W-4 any time of the year (whenever your situation changes or whenever you want to update your withholding adjustments).

When Do I Have to Complete a W-4?

You will be asked to complete a W-4 whenever you begin a new job.

When Should I Complete a W-4 Form?

There are various life-changing situations which may encourage you to adjust your withholding, including:

  • Marriage, separation, or divorce
  • Buying a house
  • Having children
  • Losing a dependent
  • Holding more than one job
  • Earning a pay raise
  • Winning the lottery (or another large financial gain)
  • Owing too much in taxes
  • Getting too big of a refund

How Do I Adjust My Tax Withholding?

You can adjust your paycheck withholding by claiming allowances (withholdings) on your W-4. An allowance helps you determine your tax refund or taxes owed on your tax return. It can also help you determine whether or not you qualify for tax deductions or tax credits.

How Many Allowances Do I Claim on My Tax Return? 

That depends on whether you want a tax refund, owe taxes, or be tax balanced (no refund or taxes owed). You may want to start by increasing or decreasing your current allowances by 1 or 2, and then give your employer the new W-4 that shows the tax withholding that matches your tax goals.  

What If I Don't Know If I Want a Tax Refund, Owe Taxes, or Be Tax Balanced When I File a Tax Return?

Use our free W-4 Taxometer Tool. Simply answer a few simple questions and the Taxometer will tell you how to complete your W-4 based on your tax goals! 

I Am Still Confused! Where Can I Get More Information About the W-4 Form?

Check out the topics below so that you won't be saying to yourself, "What is the W-4 For?" What-4, W-4, get it?

What Does "W-4" Mean?

The "W" stands for "Withholding" or "Withhold" (to take out). No one seems to know exactly what the "4" stands for, but we will update this page as soon as we find out!

What Does the Information I Put on My W-4 Tell My Employer?

The information OR allowances you put on the W-4 form tells an employer how much federal (and some state) money to withhold from your paycheck. The money that is withheld pays for federal income taxes. This information will help calculate your net paycheck or how much money you will keep every pay period, after taxes are withheld. You could also earn a tax refund if you end up paying more taxes than you owe annually.

What Is an Allowance on a W-4?

It is a withholding exemption you claim on a W-4 form. It helps you determine two things:

  • Your tax refund or taxes owed on your tax return (the primary step to control paycheck withholding)
  • Whether or not you qualify for tax credits or deductions

How Will My Employer Use My Allowance Information?

Your employer will use the number of allowances you report on your W-4 to calculate how much income tax to withhold from your paycheck. This withholding is based on your salary and financial situation. For example, if you are married and have one child, you can take two allowances.

The allowances will not only affect the size of your paycheck, it makes an impact on how much you owe to the IRS or how much your tax refund will be at the end of the year.

What Can I Take Allowances For on My Form W-4?

You can take allowances for yourself, your spouse, and each of your dependents--but that is not all! You may also wish to take allowances for other things, including:

Should I Only List My Dependents on the W-4 Form?

Excellent question! And the answer is "No". This is a common misconception about listing withholding allowances on the W-4. You can take allowances for many other things besides dependents (see list of W-4 allowance items above). That is why the W-4 is called a "Withholding Allowance Certificate," not a "Withholding Dependents Certificate."

Should I Report the Same Number of W-4 Allowances on My Tax Return?

Thumbs Down Tax Myth: The number of withholding allowances on your W-4 is the same as the number of exemptions you list on your tax return.

Thumbs Up Tax Truth: The only exemptions you list on your tax return are for yourself, your spouse, and one for each of your dependents. However, you can claim allowances for other items on your W-4.

How Much Taxes Should I Withhold From My Paycheck?

Let our free withholding calculator help you figure this out! Just enter your tax information (income, filing status, tax credits/deductions, etc.) and the calculator will guide you in determining how many allowances to put on your W-4. That way, you:

  • receive a larger refund (get more of your money at the end of the year) or a smaller refund (get more of your money throughout the year),
  • have little or no taxes due the next time you file your tax return, OR
  • do not owe tax or get a refund.

What if I Want More Money in My Paycheck?

You might want to increase your allowances. However, if you increase your allowances too much, you will end up owing taxes at the end of the year because you did not have enough money withheld.

What if I Want More Money in My Tax Refund?

You might want to decrease your allowances. Whatever you do not owe in taxes you will get back in the form of a tax refund.

But here is something to remember...

A refund is like an interest-free loan to the government. Some people like to use the IRS as a sort of savings account and get a big tax refund, but you could earn more money by simply putting your money into an interest-bearing bank account (the IRS will pay you 0% interest on your money). Furthermore, the value of a dollar will be less next year than it is now, due to inflation.

What If I Do Not Want a Big Refund, but Just Enough So That I Do Not Pay Taxes When My Return is Due?

You might want to consider balancing your withholding. This way, your tax refund will come from refundable tax credits and other tax breaks, not from having too much money withheld. Balancing your withholding may require you to adjust your allowances several times during the year.

How Can I Remember How Many Allowances I Want to Claim on My W-4?

More allowances = less tax withheld from your paycheck - Try and remember the phrase "More or Less"

Less allowances = more tax withheld from your paycheck - Try and remember the phase "Less is More"

Can I Only Complete a New W-4 if I Get a New Job?

No, you do not need a new job to complete or adjust your W-4. However, you might want to consider adjusting it often. Theoretically, you can adjust your W-4 with your current employer as often as you want, but for practical purposes, you should only do this once each pay period (at the most). Your employer might think that adjusting your W-4 more than once per pay period is a bit much.

What if I Have More Than One Job?

You may want to complete each W-4 with the same number of allowances, or report a different number of allowances on each W-4. It generally depends on how much money you want withheld from each paycheck.

Why Did My Employer Not Allow Me to Claim the Allowances I Reported on My W-4?

If your employer receives a lock-in letter from the IRS denying the amount of allowances claimed on your W-4, your employer is required to use the IRS calculation of allowances instead of the allowances you reported on your W-4. This must be put into place no more than 60 days after your employer receives the letter.

However, if you submit a new W-4 with more taxes that are calculated than what is reported in the IRS lock-in letter, you will be able to claim the allowances you reported on your W-4. Please be aware that this is a very rare exception.