Form W-4, also known as Employee’s Withholding Allowance Certificate, is a required document an employee completes at the time of hire. It is also used when personal or financial information changes for the employee. When employees complete this form, they provide specific employee information to the employer, including the employee’s legal name, marital status, and Social Security number. Employers use the information to determine how much money to withhold from each employee’s payroll check. Employees should review the information on their Form W-4 annually and update as needed.
The Personal Allowances Worksheet, provided at the top of Form W-4, guides the employee through a series of questions. Accurately answering these questions helps ensure the employee will not have too much (overpayment of taxes) or too little (underpayment) withheld from each paycheck.
A big factor in finding the correct withholding is to understand how the IRS defines allowances. Basically, an allowance is one person. Employees can claim themselves as one allowance. An employee’s child or spouse counts as another allowance. Each allowance claimed reduces the amount of federal tax withheld from payroll. Claiming zero allowances results in the highest amount of tax withheld, while claiming four allowances will result in less withholding. If an employee claims more than nine allowances, the employer may be required to send the information to the IRS for review.
An employee can claim allowances for other reasons, such as if the employee is working two jobs, is self-employed, or expecting to qualify for certain federal tax credits such as dependent or child care expenses. Employees can find more information on the Personal Allowances Worksheet and Form W-4, Deductions and Adjustments Worksheet and Two-Earners/Multiple Jobs Worksheet.
The IRS offers an online Withholding Calculator with additional tips on arriving at the correct withholding amount. The calculator can be personalized with details specific to each taxpayer. There is no cost to utilize this tool.