IRS Form W-4, or an Employee’s Withholding Certificate, is filed by an employee to tell their employer how much of their pay to withhold in federal income taxes. This form is typically filled out as part of the onboarding process.
Correctly filling out Form W-4 is important because errors could result in an employee overpaying or underpaying their taxes. In the latter case, they might have to pay interest and penalties.
As an employer, it’s important to collect W-4 forms to demonstrate that you’re making efforts to collect accurate withholding information from your employees. In the event of an IRS audit, W-4 forms can serve as evidence of your compliance with withholding requirements.
When To Fill Out a W-4 Form
Employees must fill out a W-4 form whenever they start a new job. Note, however, that independent contractors and freelancers do not fill out a W-4 form. Instead, these non-employee workers must fill out a W-9 form.
The form does not need to be filed every year, but employees can file a new W-4 if they want to change their withholdings, for example, if:
- The employee has got married and is filing taxes jointly with their spouse
- The employee’s spouse has changed jobs
- The employee has children or other dependents
- The employee has taken on a second job or is receiving other income
- The employee has taken a large pay cut or raise
Note that it’s possible to file a new W-4 anytime—not just once a year. So, an employee can file a W-4 if they want to check how much is withheld from their next paycheck. If it’s too much or not enough for their expected tax bill, they can file a new W-4 to adjust their withholdings. Keep in mind that Form W-4 does not impact the amount withheld for Medicare and Social Security taxes.
How To Assist Your Employees in Filling Out Form W-4
There’s no “right” or “wrong” way to fill out Form W-4, but most individuals will want to fill out the form so that their withholdings just about match their tax bill. If they withhold too much, the employee is essentially giving the government a free loan until they get their tax refund. If they withhold too little, they could be hit with a large tax bill in April.
With that in mind, here’s how your employees should fill out Form W-4:
Step 1: Enter personal information
The first part of Form W-4 requires the employee to enter their name, address, social security number, and filing status.
Step 2: Multiple jobs or spouse works
If the employee has more than one source of income, or their spouse also works and they’re filing jointly, they’ll need to fill out this section. Otherwise, they can skip it.
The best way to approach withholding for multiple jobs is to use the IRS’s online withholding calculator. The employee can input details about their and their spouse’s jobs and the calculator will advise what amounts to list for the adjustments in Step 4 of Form W-4.
If the employee and their spouse hold jobs with roughly equal income, there’s a box to check in Step 2(c). Both spouses must check this box on their respective W-4 forms if they choose this option.
Step 3: Claim dependents
If the employee has children or other dependents, they can adjust their withholdings to account for them here. The instructions for Form W-4 provide help in calculating how much the employee can claim for child tax credit when filing their annual federal tax return. To claim dependents, the employee’s total income must be no more than $200,000 (or $400,000 if they’re filing jointly with their spouse).
Step 4: Other adjustments
If there are adjustments to make from Step 2, the employee can add them here. There’s an option to declare other non-job-related income, such as from dividends or interest.
The employee can also request to reduce their withholdings if they intend to claim deductions other than the standard deduction on Form 1040. In addition, they can request extra withholdings if they prefer to err on the side of overpaying their taxes rather than underpaying.
This section can also be used to claim exemption from withholding.
Step 5: Sign
The employee must sign and date the Form W-4, then submit it to their employer for filing.
Increasing or Decreasing Your Withholdings
If an employee finds that their withholdings don’t accurately match their tax bill at the end of the year, they can file a new W-4 form to change the amount withheld from their paycheck.
To increase the amount withheld, the employee should request extra withholding in Step 4(c).
To reduce the amount withheld, they should reduce the amount of extra withholding requested in Step 4(c), or increase their deductions in Step 4(b).
What Should You Do With Completed W-4 Forms?
Once you’ve collected a new W-4 form from an employee, you can make adjustments to the employee’s tax withholdings. You’ll need to do this by the end of the first pay period that falls 30 days after you received the new W-4 form.
You should store completed W-4 forms in an employee’s file or with your business’s other payroll records. Companies do not have to submit W-4 forms to the IRS, but the IRS can request copies at any time.
When a current employee submits a new W-4 form, you no longer need to keep their old one. You’re required to shred or incinerate old W-4 forms when discarding them in order to protect employees’ personal information. If your company collects W-4 forms digitally, make sure the old forms are completely wiped from all storage media.
Employees file Form W-4 to tell their employers how much to withhold from their paychecks for federal income taxes. It’s important that your employees fill this form out correctly so that they’re not overpaying or underpaying their income taxes throughout the year. Employees can file a new W-4 form at any time to adjust their withholding.
In addition, the correct filing and storage of Form W-4 will ensure your business is in compliance with IRS requirements for record-keeping.