The W-4 form (Employee’s Withholding Certificate) is an IRS form used by employees to specify how much federal income tax should be withheld from their paycheck. Employees complete a W-4 form when they start a new job, experience a major life change (such as marriage or the birth of a child), or wish to adjust their tax withholding.
The amount of tax withheld is based on several factors, including:
- Filing status: Single, married, or head of household.
- Dependents: The number of qualifying dependents an employee can claim to reduce their tax liability.
- Additional withholdings: Employees can request additional amounts to be withheld if they expect to owe more taxes due to other income, such as from freelance work or investments.
Accurately completing the W-4 form ensures that the right amount of tax is withheld, helping employees avoid a large tax bill at the end of the year or receiving a significant refund. Employees can use the IRS Tax Withholding Estimator to determine the correct amount to withhold based on their financial situation.
If an employee has too little withheld, they may owe taxes and penalties at tax time. If too much is withheld, they may receive a refund, but they are essentially providing the government with an interest-free loan.