The W-4 tax form is used by your employer so that the correct amount of federal income tax can be withheld from each of your paychecks. This form is one of the most incorrectly filed out forms. In filing incorrectly, you will either have too much money taken out of each check, causing a large refund to be issued at tax time or too little to be withheld, causing money to be owed at tax time. Learning how this form affects you can save you stress and provide better financial planning.
The aspects that affect the number of exemptions you can claim are: your dependents and/or children, your number of jobs, the number of income earners in the household, your filing status, and if you itemize your deductions on your tax return. In order to help determine the number of exemptions you can claim, you will need to use the three worksheet found on this form: the Personal Allowance Worksheet, Deduction and Adjustment Worksheet, and the Two-Earner/Multiple Jobs Worksheet.
With this form, as long as you are not under the age of eighteen (or twenty-three and attending college), you should always claim an exemption for yourself. This is going to be the first line of the Personal Allowance Worksheet. The next line concerns your marital status and if there is only one main income for the entire household. You can claim an exemption on line C for your spouse. If your spouse works (one or multiple jobs) or you have multiple jobs, it may be better for you not to claim an exemption on this line to prevent too little tax from being withheld. Lines D, F, and E, all concern your dependents and childcare expenses. You will total up these allowances on line H, but keep in mind that this number may not be the same as the exemptions you are able to claim on your tax return.
The 2nd page of the W-4 tax form has the Deduction and Adjustment Worksheet and the Two-Earner/Multiple Jobs Worksheet. You would only use the Deductions Worksheet if you estimate qualifying deductions such as medical expenses, state and local taxes, mortgage interest, and charitable contributions will be more than ten percent of your income. You should use the other worksheet if it applies to you or your spouse.
Filling out this form correctly, will have an effect on each of your paychecks and also on your tax return. You should consider updating this form yearly or as changes occur, such as marriage, childbirth, divorce. But keep in mind, the less exemptions you take, the more federal tax will be withheld from your paycheck.
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