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Understanding your W-4 and how to fill it out

Maintain peace of mind during tax season by correctly filling out your W-4.
a close up of a sign with writing on it.
Credit: Vincent Romero, Aliaksandr Dobysh / Adobe Stock
Key Takeaways
  • A W-4 is a tax form that your employer uses to withhold taxes for the IRS on your behalf.
  • Filing a W-4 form ensures the correct amount of taxes is withheld from your paycheck.
  • Before filing your W-4, check if you are exempt from filing or have experienced a significant life event for the tax year.

Picture this. You’ve just landed your dream job, and you’re thrilled to begin a new chapter in your career. But amid the excitement, there’s one crucial piece of paperwork standing between you and your first paycheck: the mysterious and often misunderstood W-4 form. While it may seem daunting, getting your W-4 right is the key to unlocking the Goldilocks zone of tax withholding where you’re not owing a fortune in April, nor letting the government hold onto too much of your hard-earned cash throughout the year. 

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A W-4 form, officially known as the “Employee’s Withholding Certificate,” is a tax form used in the United States. When you start a new job or need to adjust your tax withholdings, you fill out this form to provide your employer with the necessary information to determine the correct amount of federal income tax to withhold from your paychecks.

Your employer is then responsible for submitting those withheld taxes to the Internal Revenue Service (IRS) on your behalf. It’s essential to fill out the W-4 accurately to avoid under-withholding, which could result in owing taxes when you file your tax return, or over-withholding, which means you would receive a larger tax refund but have less take-home pay throughout the year.

Filling out the W-4 form is pretty straightforward, especially since the IRS simplified the form in 2020, though it can still be complicated if you have multiple jobs, children, or a spouse who also works.

How taxes are withheld from paychecks

By the end of January, you should receive a W-2 form showing how much income you’ve earned from your employer and how much taxes were withheld during that year. The amount of taxes withheld depends on the information you submitted on your W-4 form.

Typically, the following taxes are withheld from an employee’s paycheck:

Federal income tax: This is the tax your employer sends to the IRS. The federal income tax in the United States operates on a progressive system, which means that different portions of your income are taxed at different rates based on tax brackets. For the 2023 tax year (taxes due in April 2024), the federal income tax brackets for single filers are as follows:

  • 10% on income up to $11,000
  • 12% on income over $11,000 to $44,725
  • 22% on income over $44,725 to $95,375
  • 24% on income over $95,375 to $182,100
  • 32% on income over $182,100 to $231,250
  • 35% on income over $231,250 to $578,125
  • 37% on income over $578,125

To clarify how these brackets work, let’s take an example of a person making $50,000 a year. Here’s how their income would be taxed:

  • The first $11,000 is taxed at 10%, resulting in $1,100 in taxes.
  • The next portion of income from $11,000 to $44,725 is taxed at 12%, resulting in $4,047 in taxes.
  • The remaining portion of income from $44,725 to $50,000 is taxed at 22%, resulting in $1,160.50 in taxes.

The total federal income tax due for this person would be the sum of the taxes from each bracket, which is $6,307.50. It’s important to note that only the income that falls within each bracket is taxed at that bracket’s rate, and not the entire income. (Note: These brackets may change each tax year.)

Here are the rates for married people filing jointly:

  • 10% on income up to $22,000
  • 12% on income over $22,000 to $89,450
  • 22% on income over $89,450 to $190,750
  • 24% on income over $190,750 to $364,200
  • 32% on income over $364,200 to $462,500
  • 35% on income over $462,500 to $693,750
  • 37% on income over $693,750

State income tax: Typically, an employer withholds state income tax on your behalf, though the rules and procedures may vary by state.

State taxes can range between 1%  to 12.3% depending on the state you are in, your filing status, and your residency status.

Not every state has an income tax (e.g., Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming). But generally speaking, people in these states pay higher property taxes and sales taxes.

Local income or wage tax: In addition to the federal income and state income tax, some local governments impose a local income tax (city or county tax). This tax rate usually falls between 0.5% – 3%. 

Social Security tax: This tax goes to a Social Security trust fund that pays for retirement, disabilities, and other benefits for Americans under the Old-Age, Survivors, and Disability Insurance (OASDI) Program. The current tax rate for social security is 6.2% and 1.45% for Medicare.

Medicare tax: This is the health insurance tax for people aged 65 and older. The tax goes to the Hospital Insurance Trust Fund and is used to fund hospitals, nursing home expenses, and other medical disabilities. The 2022 Medicare tax rate is 2.9% — both employers and employees pay 1.45% each. 

FUTA tax (Federal Unemployment Tax Act): This tax provides unemployment benefits to people who have lost their jobs. The employer pays this tax. It is not deducted from employees’ wages. 

SUTA tax (State Unemployment Tax Act): This tax funds state programs. The employer pays this tax. It is not deducted from employees’ wages.

Important things to keep in mind when filing your W-4

Check if you are exempt from filing

It is a common misconception that everyone has to pay taxes. You may be exempt if:

  • You are 65 or older and are on social security income. 

However, if you are earning more than $14,250 (non-social security income), you may be subject to taxes. To learn more, see About Form 1040-SR, U.S. Tax Return for Seniors.  

  • Your income is below the filing threshold
    • Less than $25,900 and you are married, filing jointly, and both spouses are under 65. 
    • Less than $12,950 and you are single and under 65.

If an employee had no tax liability in the previous year and expects to have no tax liability in the current year, they can claim exemption from federal income tax withholding by writing “Exempt” on Line 4(c) of the W-4 form.

Update your W-4 after major life events

While you can update your W-4 at any time, it’s a good idea to update when you experience any of these major life events, as they are likely to change the amount of taxes you need to pay:

  • Marriage
  • Divorce
  • Have a child
  • Buy a house
  • Obtain freelance income
  • Your income increases or decreases

Determine if you are a non-resident alien

A non-resident alien is someone who has not passed the green card test and hence is not yet a U.S. citizen. Nonresident aliens must follow special instructions when completing Form W-4. See Notice 1392 for details.

Where to get the latest W-4 form?

You can download the W-4 form from the IRS website.

Filling out the W-4 form 

Step 1: Fill out your personal information — first name, middle, last name, full address, and social security number.

Determine your anticipated filing status by choosing from the three options:

  • Single or married filing jointly

If you are single or a married couple, you would choose this option. Married couples would file a single tax return.

  • Married filing separately or qualifying surviving spouse

For this status, you and your spouse will report income on separate tax returns. Couples may do so if one of them has large out-of-pocket expenses. Generally, filing separately is not recommended as it can result in disqualification from several tax deductions and credits.

The qualifying surviving spouse status applies to you if your spouse passed away and you did not re-marry for two years. In such a case, you can use the Qualifying Widow(er) filing status in your tax form.

  • Head of household

You would choose this status if you are unmarried and responsible for paying at least half of the housing expenses and have qualifying children or dependents.

Step 2: Declare income from multiple jobs or the income of a working spouse

This option applies to you if you have more than one job at a time or are filing jointly as a married couple where your spouse also works.

Check the box in option 2c) if you and your spouse have a total of more than two jobs. You have to check the same box on the W-4 you are filling for the second job. The standard deductions will be divided equally between both jobs. 

A word of caution: The tax calculation for this option works best for jobs with similar pay. If there’s too much of a pay difference between both jobs, a lot of tax may be withheld. For the highest paying job, complete steps 3–4(b) on the form and leave those steps blank on the other W-4.

To get an idea of how much extra tax may be withheld for your specific case, see Publication 505

Tatiana Tsoir, CPA and financial coach, recommends treating every W-4 for every job separately, rather than indicating on the W-4 that you have more than one job. 

“It’s a road to confusion and incorrect withholding, and you may end up getting an unpleasant surprise at tax time,” she says. By keeping each job’s W-4 separate, the required tax will be cut for that amount of income on the W-4.

Step 3: Claim dependents and the Child Tax Credit

This option applies to you if you have children or dependents. A “qualifying child” or a “qualifying relative” is considered a dependent. 

The Child Tax Credit provides a tax break to families of qualifying children. You can claim the credit if you meet the following criteria:

  • Your annual income is not more than $200,000 ($400,000 if filing jointly).
  • The child must be under the age of 17 as of the tax year.
  • Must live with you for more than six months as a dependent.
  • Must have a social security number.

Tsoir advises caution when claiming dependents.

“I’ve seen people claim too much and then owe it all back at tax time,” she says. So, be sure you are allowed to claim these people as dependents on your tax return so you don’t run into any issues later on. 

You may also be eligible for other credits, including:

  • Child and dependent care credits.
  • Earned income tax credit.
  • Adoption credit and adoption assistance programs.
  • Education credits.

For more details, see how the IRS describes the Child Tax Credit.

Step 4 (optional): Make other adjustments

This section applies to you if:

  • You expect income from other sources (apart from your job) this year. 

Examples of other types of income include alimony, dividends, rent, etc. As such income isn’t subject to withholding, you may have to pay an estimated tax. To learn more, see Form 1040-ES.

  • You expect to claim deductions. 

Itemized deductions (home mortgage interest, charity, local taxes, and medical expenses) and other deductions such as student loan interest and IRAs can be claimed in step 4(b). Refer to the Deductions Worksheet on page 3 for details.

  • You want extra tax withheld from your income.

Withholding extra tax from your paycheck may seem like a bad idea, however, using this option can increase your refund or reduce the amount of tax you owe. 

To figure out how much amount to withhold, use the IRS calculator to calculate the withholding amount. Determine the refund amount you are expecting and divide it by the number of annual paychecks you get. For example, $1200/24 = $50. Now add the result ($50) to the amount the IRS calculator generated and put the final total in step 4(c).

Step 5: Employer and employee signatures

Finally, both the employer and employee must sign and date the form before filing the taxes for the year.

How to check your tax withholdings

The IRS Tax Withholding Estimator is a tool you can use to understand your withholdings, expected refund amount, and take-home pay. However, it’s not simple and straightforward, and you may need to spend some time figuring it out. 

The tool collects information about you, your income, adjustments, deductions, and tax credits. Keep this information handy before using the tool. 

“Apart from the IRS tool, I also use SmartAsset paycheck calculator as an estimating tool as it is simple to use,” Tsoir says. “Use your paystub for calculations or add an estimated gross number to check your withholding amount.”

So there you have it — a comprehensive guide to decoding the enigmatic W-4 form and mastering the art of tax withholding. Navigating the world of taxes may seem like a labyrinth, but with the right tools and knowledge in your arsenal, you’re more than equipped to take control of your financial destiny. Remember, the W-4 form isn’t just a piece of paperwork; it’s your ticket to achieving that delicate balance where you’re neither dreading a massive tax bill nor allowing the government to keep too much of your money throughout the year. 

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