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Global Work Glossary

How does Form W-4 affect tax withholding?

Form W-4, the Employee’s Withholding Certificate, is a crucial tax document used by employees in the United States to inform their employers of the correct amount of money to withhold from their salary for federal taxes. It directly affects the amount of federal income tax withheld from each paycheck.

Usage of Form W-4:

When starting a new job or experiencing significant life changes such as getting married, having a child, or starting an additional job, employees must fill out a new Form W-4 to ensure accurate tax withholding. Filling out the form accurately helps avoid scenarios of overpaying or underpaying taxes throughout the year.

Changes in the New Form W-4:

The IRS made significant changes to Form W-4 in 2020, eliminating allowances due to changes in tax laws. Previously, taxpayers could claim allowances to reduce their taxable income, but this practice is no longer applicable. Instead, the form now focuses on providing more simplified and accurate withholding calculations.

Frequency of Filing Form W-4:

While the IRS recommends filling out a new Form W-4 each year, it's not mandatory unless there are significant changes in personal or financial circumstances. Events such as starting a new job, getting married, or having a child may necessitate updating the form to ensure accurate tax withholding.

Claiming Exemption:

Certain individuals may be eligible to claim exemption from federal income tax withholding if they had no tax liability in the previous year and expect none in the current year. This exemption must be claimed annually by submitting a new Form W-4 to the employer by February 15th of each year.

Steps to Fill Out Form W-4:

Personal Information: Provide name, address, Social Security number, and filing status. Multiple Jobs or Spouse Works: Indicate if you have multiple jobs or if your spouse works. Deductions and Adjustments: Optionally, claim deductions and additional adjustments to withholding. Child Tax Credit: If eligible, claim dependents to qualify for the child tax credit. Additional Withholding: Specify any additional amount you want to be withheld from each paycheck. Signature and Date: Sign and date the form to certify its accuracy.

Difference Between Form W-4 and Form W-2:

Form W-4 is filled out by employees to inform their employers of tax withholding preferences, while Form W-2 is completed by employers to report employees' annual wages and the amount of taxes withheld. Using Technology for Accuracy: The IRS offers tools such as the Tax Withholding Estimator to help individuals accurately estimate their tax withholding based on personal circumstances and preferences.

Submission of Form W-4:

Completed and signed Form W-4 should be submitted to the employer, who uses the information to calculate the employee's tax withholding. Employers may require submission online or in-person.

State vs. Federal Taxes:

Form W-4 is for federal tax withholding, but many states accept the information provided on the federal W-4 for state tax withholding purposes. However, some states have their own version of the form or require additional documentation.

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