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W-4 Withholding Tax Form – Instructions for Exemptions & Allowances

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Each time you begin a new job, one of the forms your new employer asks you to fill out is a Form W-4. This form helps your employer determine how much federal income tax to withhold from your paycheck based on your filing status, the number of dependents you claim, and other income and deductions that will appear on your tax return.

Form W-4 was revised for the 2020 tax year to eliminate exemptions and allowances. Before the Tax Cuts and Jobs Act of 2017 (TCJA), you could claim an exemption for yourself, your spouse (if married), and any dependents on your return. Each exemption reduced your taxable income by $4,050 in 2017 (the last year exemptions were a part of Form 1040).

Allowances were a way to adjust your federal income tax withholding. Under the old Form W-4 instructions, you could claim an allowance for every exemption you were allowed to claim on your return. Or if you wanted to have more tax withheld from your paycheck, you could claim fewer allowances. The revised form aims to be more straightforward.

How to Fill Out Form W-4

The redesigned Form W-2 consists of five steps. Every employee needs to fill out Steps 1 and 5. You only need to complete Steps 2 through 4 if they apply to you.

Pro tip: If you have any questions when filling out your Form W-4, contact a tax advisor through H&R Block. They have on-demand chat available year-round to help you with all your tax needs.

Step 1: Enter Personal Information

Step 1 is easy to complete. You provide your name, Social Security number, and address. There’s also a note to make sure the name on your W-4 matches the name on your Social Security card. If you recently got married, divorced, or legally changed your name but haven’t yet updated your name with the Social Security Administration (SSA), you must use the name shown on your Social Security card. You can fill out a new W-4 once you’ve given the SSA your new name.

You also need to provide your tax-filing status. The form gives you three options:

  1. Single or married filing separately
  2. Married filing jointly or qualifying widow(er)
  3. Head of household

If you’re exempt from withholding — meaning you paid no federal income taxes in the previous year and expect not to have a federal income tax liability this year — you can choose not to have any federal income tax withheld from your pay. In this case, skip to Step 4 and write “EXEMPT” in the space under box 4(c). Then move on to Step 5.

Otherwise, you must complete steps 2 through 4.

Step 2: Multiple Jobs or Spouse Works

If you have more than one job or if you’re married and your spouse works, you need to complete Step 2.

This section gives you three options:

  1. Use the IRS’s Tax Withholding Estimator. This IRS tool helps you estimate your withholding based on your pay (and your spouse’s, if married), all sources of taxable income you receive, and the actual tax deductions and credits you claim on your return. Before using the tool, gather your most recent pay stub (and the pay stub for your spouse, if married), information on any other source of income, and your most recent tax return.The tool walks you through a series of questions about your filing status, dependents, income, how frequently you get paid, and your tax deductions and credits.The estimator tool is your best option if you have more than one job for only part of the year, receive dividends or capital gains, or earn income from self-employment.If the estimator tool says you need to have more tax withheld from your paycheck, you can enter the additional withholding in step 4(c).
  2. Use the Multiple Jobs Worksheet. The estimator tool is the most accurate option. But if you’re not comfortable entering your information online, Page 3 of Form W-4 includes a worksheet to help people with multiple jobs estimate their withholding.Be sure to read the worksheet’s instructions carefully to avoid errors that can lead to having too little or too much tax withheld.Enter your result from the worksheet in step 4(c) of Form W-4.
  3. Check the Box. If you have only two jobs and receive similar pay from each, you can simply check the box in step 2(c). This option instructs your employer to calculate your withholding as if the standard deduction and tax brackets were cut in half for each job.If you check this box, be sure to check the box on the Form W-4 you fill out for both of your jobs.One important thing to note: If you don’t want your employer to know you have a side hustle, you don’t have to include this information on Form W-4. Instead of having the taxes come directly out of your paycheck, you can make quarterly estimated tax payments for your self-employment income to the IRS yourself.

Step 3: Claim Dependents

You only need to complete Step 3 if you claim dependents on your tax return. Remember, the IRS never considers your spouse a dependent for tax purposes — even if they don’t work.

This section estimates the total child tax credit and credit for other dependents you can claim when you file your tax return.

To complete the first space in Step 3, multiply each dependent child under the age of 17 at the end of the year by $2,000. In the next box, multiply the number of other dependents by $500. Then add up the total of those two boxes and enter the result in Box 3.

If you claim other tax credits, you can also enter the credit amount in Box 3. That can include:

Step 4: Other Adjustments

Step 4 is sort of a catchall section for any other income, deductions, or withholding adjustments you want your employer to include when calculating your withholding.

In Step 4(a), enter income (other than from another job or self-employment) you want your employer to include when calculating your total income in their withholding calculation.

Don’t include other income that already has taxes withheld, such as retirement account withdrawals, unemployment compensation, and Social Security benefits.

To complete Step 4(b), use the deductions worksheet found on Page 3 of Form W-4. This worksheet helps you determine whether it’s better to take the standard deduction or itemize. It also takes into account other deductions you can claim on your tax return, including:

Enter the result from this worksheet in Step 4(b).

In Step 4(c), you enter any additional tax you want withheld from your pay each pay period. For example, if you want your employer to withhold an additional $5,000 per year and you get paid twice per month, you would enter $208.33 (that’s $5,000 divided by 24 paychecks) on this line.

If you used the withholding calculator or the multiple jobs worksheet in Step 1, you can also include any additional withholding recommended by the tool or worksheet here.

Step 5: Sign Here

The last section of Form W-4 simply requires you to sign and date the form. Once you’ve done that, return the form to your HR department.

When to Fill Out Form W-4

When you start a new job, your employer requires you to complete Form W-4. But you can fill out a new W-4 any time your tax situation changes.

Some common reasons to fill out a new W-4 include:

  • Getting married or divorced
  • Having a child
  • Discovering you had too much or too little tax withheld in the previous year
  • Getting a significant raise or bonus
  • Getting (or leaving) a second job or side hustle
  • Taking a significant pay cut
  • Buying a house

Final Word

Form W-4 helps calculate your federal income tax withholding. If your state has an income tax, your employer may ask you to fill out a separate state-specific form to have state income taxes withheld from your pay.

Any time you have a major life event, you should consider updating your W-4. Changes to your job and family can have a significant impact on your taxes. Form W-4 helps ensure you don’t end up with the unwelcome surprise of a big tax bill too.

Have you filled out the new Form W-4? Did you find it easier to navigate than the old version?

Janet Berry-Johnson
Janet Berry-Johnson is a Certified Public Accountant. Before leaving the accounting world to focus on freelance writing, she specialized in income tax consulting and compliance for individuals and small businesses. She lives in Omaha, Nebraska with her husband and son and their rescue dog, Dexter.

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