The IRS form W-4 (otherwise known as the “Employee’s Withholding Certificate”) tells an employer how much money to withhold from an employee's paycheck for federal taxes.
Because each taxpayer’s personal circumstances differ, tax obligations vary from employee to employee. As a result, employers won’t know how much to withhold from each employee’s paycheck unless the employees tell them. The W-4 is how employees let their employer know what amount to withhold.
Completing a W-4 requires some calculations relating to income, deductions, and personal circumstances, such as:
Fortunately, the IRS provides instructions with the form on how to fill it out properly. There are also worksheets included in the form to help with calculations, along with the IRS’s handy tax withholding estimator.
A W-4 has to be completed any time an employee begins working for a new employer. Much like paying taxes, however, filling out a W-4 isn’t necessarily a one-time event. When an employee's circumstances change—for instance, if their salary increases—they’ll need to update their W-4 to account for the new situation by adjusting withholdings. If an employee doesn’t do this, they could end up with a bigger-than-expected tax refund for the year, or worse—they may find themselves on the receiving end of a much bigger tax bill than anticipated.
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