Why do I have to complete a Form W-4?
The quick answer is: The IRS requires it. The longer answer is: Form W-4 tells your employer how much Federal income tax to withhold from your pay. The W-4 requires basic personal information, like your name, address, and social security number. The number of allowances (we’ll talk more about that later) and your filing status will determine how much income tax is withheld from your pay.
You can submit a new W-4 whenever you like. And when you have life changes (i.e. have a child or get married) or your financial situation changes (i.e. you get a pay raise), you should update it. You can use the TaxAct withholding calculator located within each product to see how changes to your W-4 will impact your take-home pay.
Why does my employer withhold so much from my paycheck?
Your employer has no discretion over how much tax is withheld from your pay. Every employer is required to withhold the amount that corresponds with the IRS withholding tables. The table is brokendown based on your pay, the pay period (i.e. weekly, bi-weekly, semi-monthly), and the information on the Form W-4 you completed.
What’s a withholding allowance?
A withholding allowance is a number that your employer uses to determine how much Federal and state income tax to withhold from your paycheck. The more allowances you claim on your Form W-4, the less income tax will be withheld from each paycheck. The number of allowances you should claim varies. It is based on a number of factors, such as marital status, job status, earned wages, filing status, and child or dependent care expenses.
Is a withholding allowance the same as a dependency exemption?
No, a tax withholding allowance is not a dependency exemption. However, they are loosely related.
Generally, the more children you have, the more allowances you should claim. A mistake some people often make is assuming they can only claim as many allowances as the number of children they have. That is not true. In fact, it may be better to claim more allowances than the number of children you have if you have multiple children. However, many other factors aside from children can affect the optimum number of allowances you should claim, including additional income, deductions, or tax credits.
How do allowances affect my paycheck?
The more allowances you claim, the less income tax is withheld from your pay. Fewer or zero allowances mean more income tax is withheld from your pay. To put it another way: More allowances equal more take-home pay and money in your pocket.
How much will one additional allowance change my take-home pay?
Using a withholding calculator is the quickest and easiest way to determine how a change in allowances will affect your take-home pay.
But before you make adjustments, don’t forget your state income tax withholding as that will be affected too. When you receive your first paycheck with the new withholding allowances, take note of how they affect your pay. If you believe it’s not the right amount or if your circumstances change, you can always submit a new Form W-4.
Why would I want to check the “Married but withhold as Single” box?
You generally have less Federal taxes withheld when you check the “Married” box. That’s because the withholding tables assume you are married filing jointly with a non-working spouse. If your spouse has a significant income, you may need to check the “Married but withhold at higher Single rate” box to have enough taxable income withheld.
Is it better to have more earned income withheld, just to play it safe?
Choosing to have too much tax withheld may feel safer and easier than figuring out how much you should withhold and how to complete the form. However, there’s nothing safe about letting the IRS hold your money for a year or more completely interest-free. The small investment of time to make sure your income tax withholding is correct is well worth it. At the same time, some taxpayers don’t want to risk having a tax bill at the end of the year – no matter how small. If that’s how you feel, adjust accordingly, provide your revised W-4 form to your employer, and plan for a small tax refund. You can still celebrate when you . Plus you can be happy knowing you didn’t have too much tax withheld