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What Is Form W-4 and How to Fill It In?

Legal
March 26, 2021
Contents
What is IRS Form W-4: Employee's Withholding Certificate?How to fill out Form W-4?FAQs
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If you’re a working individual in the U.S., you probably know what federal income tax is. You’re also aware that some people have already started preparing their taxes for filing. Yes, it’s tax time!

It is probably not how you imagined spending a sunny afternoon, but it’s something you simply need to cross off your to-do list. The official deadline to file all the documentation is in April, but since the 2020 fiscal year has ended, some people may decide to finish this errand as soon as possible.

While going through all the forms you need to fill in, you may stumble upon the Form W-4. What is it? How do you fill it in? Why does the IRS need this form anyway? Information from last year doesn’t help completely since this form has recently been redesigned. What now?

Don’t worry. We’ve prepared this article to help you understand what this document is used for, how to fill in the new W-4 form, and complete your tax return without stress.

What is IRS Form W-4: Employee's Withholding Certificate?

Note that the entire name of this certificate used to be Employee’s Withholding Allowance Certificate. But since the Internal Revenue Service (IRS) introduced a few changes to this form over the past year, allowances are no longer included and calculated for these purposes. Therefore, the document is now called Employee’s Withholding Certificate, or simply the Form W-4.

Depending on how much you earn and the details you provide by filling in the Form W-4, your employer will determine how much federal income tax they should withhold from your paycheck.

The Form W-4 is a document that lets your employer know the correct amount of money they should withhold from your salary for federal taxes.

The IRS taxes almost every type of income when it surpasses a specific amount, so it’s one of your duties to file your taxes properly and on time. Filling in the Form W-4 may be particularly important since it directly affects the portion of your paycheck that you bring home.

This is what Form W-4 looks like

What is Form W-4 used for?

When you change your job, your new employer needs to learn how much money they are supposed to withhold from your paycheck. In order to do that, they need you to fill in the Form W-4 and provide information on which the employer bases their calculation.

If you put effort into filling in this form as accurately as possible, you may avoid one of the two scenarios:

  1. Overpaying your taxes and consequently having less money to dispose with.
  2. Underpaying your taxes and having to pay a large amount of money when taxes are due, which may also result in penalties or a tax bill.

The second case is usually a more worrying scenario since a tax refund is possible if you end up paying too much for your salary taxes. However, withholding too much means that the amount of money in your bank account could have been higher if you had filled in the Form W-4 correctly the previous year.

What has the IRS changed in the new Form W-4?

The tax withholding form your need to fill in for 2021 is different from the old one in several aspects.

In 2020, the form W-4 stopped calculating allowances. Those who had a chance to fill in this form before, remember that the allowances worksheet used to be on page three of the document. Now, it’s no longer a part of the form.

This change also impacted the name of the document, which we’ve mentioned at the beginning.

And if you’re wondering why allowances have been removed, here’s the answer. The Tax Cuts and Jobs Act (TCJA) doesn’t allow personal exemptions anymore. Before, taxpayers could reduce their taxable income by deducting a specific amount of dollars from their total income. Allowances were a part of exemptions so they’re gone as well and you can’t claim dependency or personal exemptions anymore, so the number of allowances is irrelevant.

Luckily, you can still use the standard deduction to decrease your tax payments.

According to the IRS, the goal of removing allowances from Form W-4 was to make the filing of these tax forms more simple and accurate.

Note that you don’t need to fill in a new form just because it has been redesigned. If you haven’t gone through any significant changes that would require reporting in this tax form, you’re all set with your most recent Form W-4.

How often do you fill in the form W-4?

In normal conditions, you should fill in the Form W-4 at least once a year. Some people don’t fill in this form for years since there are no big changes in their career.

However, there are several cases in which the IRS expects you to fill in this form again because the amount of tax you’re supposed to pay may have changed. That includes some events related to your personal life as well.

For example, you should revisit your tax situation if you:

  • Start an additional job (or your spouse does)
  • Start a new job
  • Change your marital status (get married or get divorced)
  • Have a baby

In these situations, your withholding amount of money may change depending on your new financial situation. Therefore, you should fill in a new Form W-4 and submit it to your employer.

What to claim in form W-4?

To calculate your federal income tax correctly, you need to know what you’re supposed to claim in Form W-4.

What you’re going to claim in this form may depend on several factors, so make sure you’ve gathered all the necessary documentation to start doing your taxes.

You’ll need:

  • Your recent pay statements (and for your husband or wife, if married)
  • Documents related to other income sources you might have
  • Your recent income tax return

These documents allow you to use an online tax withholding estimator so you know in advance how much money will be withheld from your paycheck.

How do I know if I’m exempt from income tax withholding?

Before filing your taxes, make sure you find out if you’re exempt from withholding federal income tax.

In this case, your social security and medicare will still be removed from your total income, but not the federal taxes. That may happen if you didn’t have tax liability the prior year and therefore you’ve received a refund of the whole amount of federal income tax you had withheld.

If you’re anticipating that it will happen again this tax year, that is another thing that makes you eligible for exemption.

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How to fill out Form W-4?

In this section, we’ll provide you with step-by-step W-4 instructions so you can ensure that the form is filled in accurately.

For some people, filling in W-4 can be very simple. For example, single people with only one job and no specific tax deductions will be able to complete the form in five minutes. Others may have a more complex task - if they’re filing the taxes jointly, for instance, or if they need to fill in a multiple jobs worksheet.

Whatever your case is, follow the steps below to fill in the Form W-4 without errors.

Step 1

First, you’re required to enter your personal information - your name and address, your social security number, and your tax-filing status. You’ll also need to select your marital status here. Point out if you’re filing as a single person (or married, but filing separately) or jointly with your spouse.

Step 2

If you have more than one job, you’ll need to account for them in this section. The same goes if your wife or husband also works and you’re filing your taxes jointly. You’ll find all the necessary instructions in the form.

Choose one of the options given to you in this section, but remember that using the estimator from the option a) gives you the most accurate withholding calculation. If you and your husband or wife have similar salaries, you can select the option c). Ensure that your paychecks are indeed similar if you want to avoid paying more for taxes than you really should.

If these conditions don’t apply to your situation, you’re not required to fill anything in these sections. You only need to complete steps one and five.

Step 3

If you’re a parent, you can complete this step to determine if you’re eligible for the child tax credit. If you’re filing jointly with your spouse and your salaries put together don’t exceed $400,000, you’re eligible. The same goes if you’re a single taxpayer and your income is less than $200,000 per year.

Your other eligible dependents may be any relatives that you support with your income, in case they qualify. If you’re not sure whether your relatives qualify for your tax withholding calculation, you can check it here.

Step 4

This step will help you add to the accuracy of your total tax withholding. To prevent the amount from being too big or too small, you can add any additional information that will help the employer determine the right amount of money they need to withhold from your paycheck.

That way, you’ll avoid tax bill and penalties, and you won’t end up paying too much.

Who may need to add information to this section?

  • People receive pension benefits from their old jobs, but still work
  • People who receive Social Security benefits
  • People who use Form 1099 to report other types of income (like self-employment, for example)

In this step, you can also claim deductions, but keep in mind the amount you requested the previous year. In case you want to claim the standard deduction, no need to fill in this section.

Note that you need to fill in a separate Form W-4 for every job you may have.

Step 5

The last step is to sign the form and date it. Before you do that, it’s recommended to go through the form one more time and make sure all the information you’ve provided is true and complete.

Your employer may not send your Form W-4 to the IRS, but file it into their own archive. The main purpose of the document is for the employer to calculate your tax withholding.

What is the difference between W-4 and W-2?

The Form W-2 is also a tax statement. However, in this case, the employer sends it to the employee and to the IRS in December each year, and in this document, all the annual wages of a particular employee are reported. The form also contains the total amount of taxes that the employer has withheld from the employee’s wages.

Unlike Form W-4, this document is the employer’s responsibility. Employers use the W-2 form to report the FICA taxes during the year for each of their employees. These taxes refer to the federal payroll tax that’s deducted from your paycheck and is used for your Social Security.

In addition to this, your employer needs to file this form with the IRS, unlike the W-4.

FAQs

Here are a few more frequently asked questions about Form W-4.

What if I don’t want my employer to know that I have a second job?

It’s not unheard of that an employee doesn’t want their employer to know about their additional income. If that’s your case, here’s what you can do.

While filling in Form W-4, don’t mention another source of income. As you still need to report that income to the IRS, you can do it by estimating the tax payments for this side income and sending the money quarterly directly to the IRS.

Another option is to simply request from the employer to withhold an additional amount of money from your salary.

How long until the IRS applies the changes from the new form W-4?

If you’ve submitted a new Form W-4 because there have been changes in your household finances, the changes will be implemented very soon. However, no one can tell you exactly how long it will take as it depends on your employer and their payroll procedures.

What if an employee doesn’t submit a W-4?

Employers often want to know what happens if their employees fail to submit the Form W-4.

In this case, their only option is to act as if their employee were single, whether it’s true or not. They will calculate the income tax withholding for this particular person based on how it’s calculated for single filers, without considering any additional information on the form.

However, the employee is allowed to revise the Form W-4 and submit it to their employer again. This information is valuable to employees since the single tax rate is higher.

An employee can also submit this form to the employer and ask for no federal income tax to be withheld if they qualify for that.

Where to download the Form W-4?

You can download Form W-4 from the IRS website here. It’s the new, redesigned version of the form.

Are employees required to fill in the new Form W-4 in 2021?

They’re not, although the employer may ask them to do so. However, if the employee doesn’t want to submit a new Form W-4 for any reason, the employer will continue to calculate their income taxes based on the previously submitted form.

If something has changed since the last time an employee has filled in the Form W-4, such as their marital status, they should submit a new one to the employer to avoid inaccuracies in tax withholding.

Use technology for high accuracy

The IRS encourages people to use their Tax Withholding Estimator to calculate their taxes and fill in the Form W-4. The software can be particularly helpful for those with big refunds from the previous year, are self-employed, or generate a side income.

Disclaimer: This article is for informational purposes and does not constitute legal, tax, or any other advice. Always check the official Internal Revenue Service website for more information.

Legal
March 26, 2021

If you’re a working individual in the U.S., you probably know what federal income tax is. You’re also aware that some people have already started preparing their taxes for filing. Yes, it’s tax time!

It is probably not how you imagined spending a sunny afternoon, but it’s something you simply need to cross off your to-do list. The official deadline to file all the documentation is in April, but since the 2020 fiscal year has ended, some people may decide to finish this errand as soon as possible.

While going through all the forms you need to fill in, you may stumble upon the Form W-4. What is it? How do you fill it in? Why does the IRS need this form anyway? Information from last year doesn’t help completely since this form has recently been redesigned. What now?

Don’t worry. We’ve prepared this article to help you understand what this document is used for, how to fill in the new W-4 form, and complete your tax return without stress.

Tax documents

Automate your tax document collection

From collecting tax forms to storing them all in one place, we automate everything, so you can stay focused on growing your business.

Learn more

Note that the entire name of this certificate used to be Employee’s Withholding Allowance Certificate. But since the Internal Revenue Service (IRS) introduced a few changes to this form over the past year, allowances are no longer included and calculated for these purposes. Therefore, the document is now called Employee’s Withholding Certificate, or simply the Form W-4.

Depending on how much you earn and the details you provide by filling in the Form W-4, your employer will determine how much federal income tax they should withhold from your paycheck.

The Form W-4 is a document that lets your employer know the correct amount of money they should withhold from your salary for federal taxes.

The IRS taxes almost every type of income when it surpasses a specific amount, so it’s one of your duties to file your taxes properly and on time. Filling in the Form W-4 may be particularly important since it directly affects the portion of your paycheck that you bring home.

This is what Form W-4 looks like

What is Form W-4 used for?

When you change your job, your new employer needs to learn how much money they are supposed to withhold from your paycheck. In order to do that, they need you to fill in the Form W-4 and provide information on which the employer bases their calculation.

If you put effort into filling in this form as accurately as possible, you may avoid one of the two scenarios:

  1. Overpaying your taxes and consequently having less money to dispose with.
  2. Underpaying your taxes and having to pay a large amount of money when taxes are due, which may also result in penalties or a tax bill.

The second case is usually a more worrying scenario since a tax refund is possible if you end up paying too much for your salary taxes. However, withholding too much means that the amount of money in your bank account could have been higher if you had filled in the Form W-4 correctly the previous year.

What has the IRS changed in the new Form W-4?

The tax withholding form your need to fill in for 2021 is different from the old one in several aspects.

In 2020, the form W-4 stopped calculating allowances. Those who had a chance to fill in this form before, remember that the allowances worksheet used to be on page three of the document. Now, it’s no longer a part of the form.

This change also impacted the name of the document, which we’ve mentioned at the beginning.

And if you’re wondering why allowances have been removed, here’s the answer. The Tax Cuts and Jobs Act (TCJA) doesn’t allow personal exemptions anymore. Before, taxpayers could reduce their taxable income by deducting a specific amount of dollars from their total income. Allowances were a part of exemptions so they’re gone as well and you can’t claim dependency or personal exemptions anymore, so the number of allowances is irrelevant.

Luckily, you can still use the standard deduction to decrease your tax payments.

According to the IRS, the goal of removing allowances from Form W-4 was to make the filing of these tax forms more simple and accurate.

Note that you don’t need to fill in a new form just because it has been redesigned. If you haven’t gone through any significant changes that would require reporting in this tax form, you’re all set with your most recent Form W-4.

How often do you fill in the form W-4?

In normal conditions, you should fill in the Form W-4 at least once a year. Some people don’t fill in this form for years since there are no big changes in their career.

However, there are several cases in which the IRS expects you to fill in this form again because the amount of tax you’re supposed to pay may have changed. That includes some events related to your personal life as well.

For example, you should revisit your tax situation if you:

  • Start an additional job (or your spouse does)
  • Start a new job
  • Change your marital status (get married or get divorced)
  • Have a baby

In these situations, your withholding amount of money may change depending on your new financial situation. Therefore, you should fill in a new Form W-4 and submit it to your employer.

What to claim in form W-4?

To calculate your federal income tax correctly, you need to know what you’re supposed to claim in Form W-4.

What you’re going to claim in this form may depend on several factors, so make sure you’ve gathered all the necessary documentation to start doing your taxes.

You’ll need:

  • Your recent pay statements (and for your husband or wife, if married)
  • Documents related to other income sources you might have
  • Your recent income tax return

These documents allow you to use an online tax withholding estimator so you know in advance how much money will be withheld from your paycheck.

How do I know if I’m exempt from income tax withholding?

Before filing your taxes, make sure you find out if you’re exempt from withholding federal income tax.

In this case, your social security and medicare will still be removed from your total income, but not the federal taxes. That may happen if you didn’t have tax liability the prior year and therefore you’ve received a refund of the whole amount of federal income tax you had withheld.

If you’re anticipating that it will happen again this tax year, that is another thing that makes you eligible for exemption.