What is the W-4 Form and How does it Work?
The W-4 form is a federal tax form that determines the amount of tax that an employee has to pay.
This document is used by employers to determine how much money will be deducted from your paycheck. The W-4 form determines the number of withholdings allowances an employee claims for deductions, which in turn determines how much money is withheld from their paycheck.
The new W-4 form does not have to be completed if you are already filling one out with your employer. You don’t need to do anything either, if you didn’t get a new job or change your withholdings lately. If you did however, then the new W-4 has to be filled out.
Changes in W-4 form in 2023
The IRS allows employees to claim extra allowances on their W-4 in order to decrease the amount of federal income tax withheld from their paycheck. Claiming more allowances will result in a smaller paycheck, but also a smaller tax bill at the end of the year.
In the past, the IRS allowed taxpayers to claim a personal exemption of $4,050 for themselves, their spouse and each of their dependents.
With that gone as a result of the 2017 Tax Cuts and Jobs Act, employers have had to adjust their W-4 forms.
Now you can reduce your federal tax withholdings with the help of dependents or the deductions worksheet.
How to fill out a W-4 for dummies in 2023
Step 1(a): Enter personal details
Employees are now required to fill out their personal information. If an employee does not fill out this form, you are required to withhold taxes at the higher “Single” rate.
You have to fill the following criteria:
- Your name
- City or town, state, and ZIP code
(b) Social security number
Note: If you have ever noticed, your name on social security may not be the exact same as it appears on your social security card. your SSN name should be a match with name.
(c) Selection of check box as per your requirement
- Single or Married filing separately
- Married filing jointly or Qualifying widow(er)
- Head of household (If you are not married and pay more than half the costs of keeping up your home then you may be eligible for one of two types of Social Security benefits.)
Note: If any of the following apply to you, please complete steps 2-4. Otherwise, go straight to Step 5.
Step 2: Multiple Jobs or Spouse Works
Complete this step if you have more than one job or are married filing jointly. The number on your W-4 depends on how much money you make from all of these jobs combined.
You have to choose any 1 option of the following depending on your criteria:
For step 2, employees only need to complete Option (A), Option (B), or Option (C). Options (A) and (B) will take employees away from the form, while option (C) can be done on the form itself.
According to the IRS, option (a) will yield more accuracy and privacy than options (b) or (c), since the new withholding estimator automatically computes all relevant entries for you.
Option (b) gives the most accurate result but you need to finish it manually while (c) is inaccurate since some jobs pay more than others. It’s easy to use though.
This is a classic case where the estimator has been used as a way to resolve these issues. It allows you to create different calculations for your estimator depending on how much work you have and what your workload is like.
Step 3: Claim dependents
If you are looking for a deduction for dependents, there is one that may apply to you. If your total income will be $200,000 or less ($400,000 or less if married filing jointly).
You can deduct $2,000 for each qualifying child that is not yet 17 and $500 for each dependent that does not qualify as a qualifying child (whether they are related to you or not).
Step 4: Other Adjustments(optional)
Adjustments to the W-4 form can be made for other income (not from jobs) and deductions. These adjustments will allow you to either receive more money back in your paycheck, or pay more taxes during the year, depending on what is best for you.
(a) Other Income source: If your other income is not coming from a job, you may want to have tax withheld. Enter the amount of this type of income below and it can help.
(b) Deduction amount: Deduction is a number you can input to reduce your withholding. If you want to claim deductions other than the standard deduction, use the Deduction Worksheet on page 3 and enter the to section (b)
The standard deduction is the usual deduction in computing taxes. This includes all deductions like charitable contributions and mortgage interest that are not the standard deduction.
To reduce tax liability, it is best to use higher of your standard deduction or your itemized deductions. The standard deduction reduces the higher of your adjusted gross income and taxable income to get the amount due.
(c) Extra withholdings: If you have extra withholding taken from your paycheck, you will receive a refund in the form of a larger tax refund or smaller balance due when you file your taxes.
Step 5: Signature of Employer
The employer’s signature on the certificate is a declaration that the information contained in the certificate, to the best of his knowledge and belief, is true.
The certificate is not accepted by any court unless it bears such a signature.
Multiple jobs worksheet
If you have two jobs or you’re married filing jointly and you both have one job, your withholding amount is on the right column.
Using the “Higher Paying Job” row and the “Lower Paying Job” column, find the value in concurrence with both salaries in each row, enter that value on line 1
Using the table on the four, find the wage for the “higher paying job” and compare it with any numbers of wages for “low paying jobs” by moving to the right
The lowest paying jobs are more likely to have higher wage growth than the highest paying jobs.
Line 2 is for someone who holds 3 total jobs on their own or with a spouse.
The second column is the one with the two high wages. Again, find the wage or salary for the highest-paying job in column B at row 2 and then look across (to column A). The number at that intersection will give you your rate of pay. Line 2a belongs to the 2 highest paying jobs.
For line 2b, two of the highest-paying jobs are found in the column on the left while the third is situated across the top of each row.
The value on line 2c is the sum of lines 2a and 2b.
Lines 3 and 4 on the multiple Jobs worksheet apply to everyone who chooses to fill out this form
Line 3 is the number of pay periods per year for the highest-paying job. For example, if that job pays weekly, then 52 goes on line 3. If it pays bi-monthly, then 24 should be entered.
When calculating the monthly net pay for your employees, you’ll need to divide either line 1 or 2c by the number of pay periods on line 3. This is what you’ll find in step 4c.
As a result of increased standard deductions under the new TCJA, only those wanting to itemize their deductions will need to use this worksheet. High earners will still benefit from using it and we advise that people proceed accordingly.
If you are self-employed, you must make estimated tax payments during the year if you expect your withholding allowances plus your itemized deductions (if any) to be less than what’s needed for your total tax liability for the year.
If you’re filling out this worksheet and don’t have your prior-year tax return handy, the calculators should be able to help you estimate those deductions.
W-4 form Exemption from withholding in 2023
You may be exempt from paying withholding for the year 2023 if you meet both of the following conditions: You don’t owe federal taxes for 2021 and you don’t expect to owe taxes.
You won’t have to pay any federal income tax for 2021 if your total tax on your Form 1040/1040-S is less than the sum of lines 27a, 28, 29 and 30 or you didn’t file a 2020 return because you were below the filing threshold.
If you choose to claim exemption, you will have no income tax withheld from your earnings and may owe taxes when you file your 2023 tax return. To claim exemption from withholding, please check whether you meet the two conditions below by writing ‘Ex’
To recalculate the withholding, you need to do steps 1 and then 5. You can skip step 5, if your employer withholds any extra in 2023.
Role of Tax Withholding Estimator
The Tax Withholding Estimator calculates the approximate amount of income tax a person should have withheld from their salary throughout the year which matches the income, adjustments to income, deductions, credits, and other items on the individual’s tax return to meet their total tax obligation.
The estimator includes information about the employee’s withholding allowances, marital status, and more.
It can also help you estimate how much in Social Security and Medicare taxes should be withheld.
The withholding amount is determined by your filing status, number of withholding allowances claimed, and additional withholding.
1) Filing status: Your filing status determines whether you are single or married. When you are married, your spouse’s income usually affects how much tax is withheld from your paycheck.
2) Number of withholding allowances claimed: Your number of withholding allowances claimed will determine how many exemptions you have on your W-4 form.
3) Additional withholding: Additional withholding may be necessary to avoid a large tax bill at the end of the year when your income is above a certain threshold. An employee can request that an additional amount be withheld from each paycheck(changing exemption) if their salary varies from month to month.
Filing W-4 as self employment and resident aliens
Being self employed: When you are self-employed, you are responsible for paying both income and self-employment taxes. There are two ways to file your tax return: as an employee or as a self-employed individual.
The IRS provides the W4 form to help employees estimate how much they can withhold from their wages.
If you want to pay these taxes through withholding from your wages, use the estimator at www.irs.gov/W4App to figure out how much should be withheld from your paycheck.
Being Nonresident alien: If you are not a U.S resident, please see Notice 1392 – Supplemental Form W-4 Instructions for Nonresident Aliens before filling out this form.