W-4? What for?

When you complete Form W-4 you help your employer withhold the proper amount of federal income tax from your paycheck so you don't have a surprise at tax time. It isn't a complicated form, but there are a few things you should make sure you know.​

The first four boxes are just your personal information. There are different withholding rates for single and married individuals, so decide whether you should have tax withheld at the higher or lower rate. If you've had a name change (e.g., recently married), mark box 4 and call the Social Security Administration.

​​You might be exempt from withholding. The basic rule to qualify as exempt is (1) you must have had no tax liability the previous year and had a right to a refund of all tax withheld, and (2) expect the same this year. That means no income tax is withheld (though Social Security and Medicare will still be withheld). This is usually only applicable to students working part-time, but may also apply to you if you are 65 or older, blind, or itemize deductions. Use the following flow chart to see if you might be exempt. If the special rules (age 65+, etc.) apply to you, see IRS Publication 505 for more information. 

Figure 1-A Exemption from Withholding on Form W-4, IRS Publication 505 Tax Withholding and Estimated Tax

If you are exempt, complete W-4 boxes 1-4 and write Exempt in box 7. Sign, date, and submit. You are done. No federal income tax will be withheld from your paycheck. If you are not exempt, you need to figure out your personal allowances.

Personal allowances are calculated on the worksheet found with Form W-4. The calculation on the Personal Allowances Worksheet helps you have the right amount of income tax withheld. This number is not the same as the number of dependents or exemptions claimed on Form 1040, so do not confuse the two. When you have completed the worksheet take the amount from line H and transfer it to box 5 of Form W-4.​ Note that this is a worksheet, not part of the actual form, and the instructions tell you to keep it for your records.

If you want an additional amount withheld to make sure you don't owe (maybe because you have another source of income) you can request that in box 6. Whatever amount is withheld according to your allowances and the tax tables, this will be added to it each paycheck.

When you start a new job your employer should give you a Form W-4 to complete. If you don't complete and return the form she is required to withhold income tax at the highest rate, as if you were single and claimed no withholding allowances. Unless you want the maximum tax withheld, complete and submit the form.

​You can change your withholding and fill out a new W-4 any time you want. The IRS has created Table 1-1 Personal and Financial Changes (right) to help you consider when might be a good time to change your withholding. If you want to check if the amount being withheld from your paycheck is close to what it should be, check out the IRS Withholding Calculator.

When you submit a new W-4 your employer can place it in effect immediately, but is not required to  do so until the deadline for putting it into effect, which is the first payroll period ending 30 or more days after you turn it in.

Your W-4 is valid until you change it. The exception is if you claim exempt, when it is only valid until February 15 of the following year. That means if you claim exempt you must complete a new W-4 each year. If you fail to do so, your employer is required to begin withholding at the highest possible rate, because (as explained above) you have not submitted a (new) form.

Though not a complicated form, the W-4 can have a significant impact on your tax return if you do not complete it correctly. Be sure to read the instructions carefully, and let us know if you need any help.