What Is a W-4 Form & How Does it Affect Your Taxes?

If you have ever had a job, you have probably seen a W-4 form. This form is what is used by employees to provide personal information including "allowances" to an employer. The employer can then use this information to deduct the appropriate amount of taxes from the employee's paycheck.

Your W-4 form contains the following information about an employee:

  • Filing status (single, married, etc.)
  • The number of dependents they have
  • Whether they have child or dependent care expenses in excess of $2000 and if they are eligible to claim the Child Tax Credit
  • Whether they plan to itemize your deductions

Answering these questions accurately allows an employer to withhold the proper amount of taxes and keeps the employee from having an unexpected tax bill at the end of the year.

In most cases, money is withheld from the employee's paycheck. The IRS requires regular tax payments throughout the year, and if you do not pay enough, the individual taxpayer could face a penalty.

What Are Personal Allowances?

Your W-4 form is used to calculate allowances based on the information entered. Each allowance claimed decreases the amount of money that an employer will withhold from an employee's check.

Taxpayers get an automatic allowance for themselves, for their spouse, and for each dependent. You can take additional allowances if you meet certain criteria.

To avoid having to pay at the end of the year, some taxpayers request that their employer withhold an additional amount from their paycheck. For example, you might do this if you have more than one job, which might place you in a higher tax bracket at the end of the year. Taxpayers can designate a certain dollar amount that they would like to have withheld from each paycheck.

Claiming an Exemption

There is also the option to claim “Exempt” on your W-4 form. If you make this claim, you are either telling the IRS that your income is low enough that you do not have to file a tax return or that you are not expecting to have any tax liability. To meet this requirement, you must have had no tax liability last year and expect to have no liability this year. If your financial situation has not changed much from last year, you can expect to have similar tax results as well.

Note: When selecting "Exempt" an employer will still withhold for Social Security and Medicare but not income tax.

Using the instructions included with the W-4 form will ensure that you provide the correct information to calculate allowances. Doing this is the key to avoiding having to pay more in taxes at the end of the year.

Q&A: What is the difference between a 1040ez and 1040A?

Please note, in 2019 the IRS introduced a new 1040 tax form which consolidated the 1040ez and 1040A. You can read more at https://www.e-file.com/help/different-1040s.php.

Now, as far as the differences between these forms, the 1040ez was the most simplified tax return form. The 1040A form was a slightly longer than the 1040ez, but still shorter than the long-form 1040. The taxable income limit for both forms was $100,000 and with both forms you must claim the standard deduction rather than itemizing deductions. Unlike the 1040ez, the 1040A allowed the taxpayer to claim dependents, and select a filing status other than single or married filing jointly. The 1040A also permitted deductions for items like student loan interest and tuition. You may also claim certain tax credits including those for child care expenses, the child tax credit, and retirement contribution credits that could not be claimed on a 1040ez.

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