When you get a job, one of the first things you should do is fill out a W-4; your employer will likely provide you with this form. Its purpose is relatively simple: It tells your employer how much money from each of your paychecks should go to the government in taxes.
It’s important to complete your W-4 form correctly so you get the right amount of money in each paycheck. If you withhold too much, you’ll get a big refund check from the government come tax time, but that means you received less pay throughout the year to pay down debt or save. On the flip side, if you don’t pay enough in taxes throughout the year, you’ll have to cut the government a check in April.
The United States tax code can be intimidating, especially at first. But if you take these instructions one step at a time, your W-4 form will be less of a mystery:
- Step 1: Fill in your personal information.
- Step 2: If you have multiple jobs, or you are married and both you and your spouse work, jump to the Multiple Jobs worksheet on page 3.
- Step 3: Claim credits for any dependents. You can claim a $2,000 credit for each qualifying child and a $500 credit for each other dependent. Add these together on line 3 of the form. Including these credits will increase your paycheck and reduce your tax refund. Leave this step blank if you don’t have any dependents.
- Step 4: Leave this line blank unless you have income (interest, dividends, retirement income) that won’t have withholdings, you want to claim more than the standard deductions, or want extra taxes withheld. Remember that the more taxes you withhold, the larger refund check you’ll get at tax time, but it will reduce the amount of your paychecks throughout the year.
- Step 5: Sign and date your form.
Once you have filled out your W-4, return the form to your employer. You may want to keep a copy for your tax records.
If you need help, the IRS website provides an estimator to determine how you should complete your W-4. You can also ask for more information from your employer’s human resources office.
If your financial situation changes—for example, if you get married, have a baby, or move—remember to revisit your W-4.
References: https://www.cashcourse.org/Topics/Earn/Taxes/Making-Sense-of-the-W-4
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