The W-4 Form, or the “Employee’s Withholding Certificate,” is an official Internal Revenue Service (IRS) document by which employers get information on their employee’s federal taxes and know how much to withhold from their salary.
The W-4 Form makes the employees’ tax-paying job easier by giving them an exact amount to deduct for taxes. The employers can easily estimate the payable amount from an employee’s salary and forward it to the IRS and the State so that the employee does not have to go through the trouble.
The form is also helpful for people working more than one job or estimating spouse-earned income and self-dependent income.
What is the Purpose of the W-4 Form?
The primary purpose of the W-4 Form is to correctly withhold an amount of the employee’s salary for taxes. This helps reduce the possibility of an employee paying more tax than required or owing a considerable sum of taxes at the deadline.
To avail of the W-4 Form, every employee must fill out the form on the first day of joining their job. They get to select a variety of allowances, and having many allowances will give them the benefit of paying less tax.
The form needs to be filled out correctly without any errors; otherwise, an employee can face tax issues. For example, if an incorrect amount of taxes is withheld from an employee’s salary, it can result in owing the IRS a significant amount when they later file taxes in April.
Moreover, failure to submit a W-4 Form by an employee will result in paying the highest tax rate set by the company. But, an employee can also use the form to exempt themselves from withholding taxes. The employee simply needs to prove that they had no payable taxes the previous year and they expect not to be liable for taxes that year.
Who Must Fill out a New W-4 Form?
Employees who already have a W-4 Form don’t need to fill it out every year. But, an employee must submit the form if they join a job.
Employees should also update their W-4 Form when the following life events occur:
Had a child or started fostering a child
Buying a new house
Salary decrease or increase
Having freelancing side jobs
What Modifications Took Place in the New W-4 Form?
A number of changes took place in the revised version of the new W-4 Form in 2022. The IRS removed the personal allowance claim from the form. Employees could easily estimate the number of allowances to claim with the Personal Allowances Worksheet, which was provided with the form.
Employees previously had the opportunity to claim as many personal allowances as they wished. This is because it would help lower the withheld amount of taxes.
In 2017, due to the Tax Cuts and Jobs Act (TCJA), the regular withheld percentage doubled, and the removal of dependent and personal exemptions occurred.
In the updated W-4 Form, an employee must note down the dependent numbers in the family. Moreover, it also asks them to mention their financial circumstances to decide on withholding more or fewer taxes. If an employee has a second job, they have to clarify to raise the withholding amount. If they have only one job, they can be considered for deductions.
How Should an Employee Fill Out the W-4 Form?
Usually, the IRS, along with the U.S. Treasury Department, revises many parts of the form. For these reasons, an employee might have to fill out Form W-4 again the following year. In 2022, the IRS released another revised form that employees must fill out without errors.
Here are some steps to help you.
1. Add Personal Information
An employee must give their legal name, correct address, Social Security Number (SSN), and status of tax filing.
2. Add Multiple Jobs Information
If you are filing the W-4 Form with your spouse, mention the income amount and tick the appropriate box. Moreover, do the same for your spouse’s Form W-4.
If you have multiple jobs, you must fill out the form carefully by noticing the different sections. It will help calculate the withholding tax effectively. Fill out 2-4(b) steps if you have a higher-paying job. Leave it blank for other employment places.
On the W-4 Form, an employee can instruct the manager to deduct an additional part of their salary. You will find this option in part 4(c). This is convenient if an employee doesn’t want to inform the manager about the second job. To avoid additional tax payments, don’t factor in the extra job income on the form. An employee can easily send their Estimated Tax Payments to the IRS for confidentiality.
3. Mention Dependents
An employee earning below $200,000 must mention the dependent number currently in the household. It lets the employee get extra credit.
4. Update Withholding Preferences
An employee can either request to withhold extra tax payments or deduct a considerable percentage from the tax returns.
5. Provide Signature with Date
An employee must sign their name, mentioning the date of the W-4 Form filing. Then, they must submit it to their company’s Human Resources (HR) or the Payroll Department.
Are There Any Penalties for Failure to Fill Out the W-4 Form?
According to the Internal Revenue Service (IRS), any employee failing to submit a W-4 Form correctly will receive a penalty of $500. If the IRS finds that employees submitted an incorrect W-4 Form to withhold fewer tax payments, they will be charged with criminal penalties. Giving false and wrong information intentionally and failing to back up the information will result in hefty fines.