Form W-4

Purpose

• Used by employees to inform employers how much federal income tax to withhold from their paychecks.

• Ensures the correct amount of tax is withheld to avoid underpayment penalties or large refunds.

Key Sections of Form W-4

1. Step 1: Personal Information

   • Name, address, Social Security Number (SSN), and filing status (Single, Married, Head of Household).

2. Step 2: Multiple Jobs or Spouse Works

   • For employees with multiple jobs or working spouses to avoid under-withholding.

   • Options:

     • Use the IRS Tax Withholding Estimator (online tool).

     • Check box for higher withholding (simplified method).

3. Step 3: Claim Dependents

   • Enter tax credits (e.g., Child Tax Credit) to reduce withholding.

   • Only for dependents who qualify for credits.

4. Step 4: Other Adjustments (Optional)

   • Additional withholdings: Extra tax per paycheck (e.g., if expecting side income).

   • Deductions: Adjust for itemized deductions (if not taking the standard deduction).

5. Step 5: Signature

   • Must be signed and dated to be valid.

When to Submit a New W-4

• Starting a new job (required).

• Major life changes: Marriage, divorce, birth of a child, or a significant change in income.

• Want to adjust withholding (e.g., to reduce a large tax bill or increase refund).

Key IRS Rules

✅ Employers must keep W-4s on file for 4 years (employment tax recordkeeping).
✅ Employees can update W-4 anytime (no need to wait for a new year).
✅ No W-4? Employer must withhold at the highest single rate (no exemptions).

Why It Matters for the Exam

• Employer responsibilities: Correct withholding based on W-4.

• Penalties: Employers can face fines for not complying.

• Tax compliance: Helps avoid underpayment penalties for employees.