Tax Tip: Form W-4 - The Key to Tax Withholding

When you start a new job, you must complete Form W-4, "Employee's Withholding Allowance Certificate," so your employer can withhold the correct federal income tax from your pay. Detailed instructions on the form and its worksheet can help you figure your correct withholding amount, according to the IRS. If your tax situation changes, you can change your withholding and submit a new Form W-4 to your employer.

You can also use the Form W-4 to tell your employer not to deduct any federal income tax from your wages. To qualify for this exempt status, you must have received a full refund of all the federal income tax withheld from your pay in 2000, and you must expect to receive a full refund of all the federal income tax withheld from your pay in 2001. Anyone who falsely claims exempt status can be assessed a $500 penalty. If the IRS believes your Form W-4 is incorrect, your employer will be instructed to withhold federal income tax at a rate up to the highest withholding rate.

If you fail to provide your employer with a completed and signed Form W-4, your employer must withhold federal income tax from your wages at the rate of single with zero allowances.

If you have a working spouse or more than one job, figure the total number of allowances you are entitled to claim on all jobs using worksheets from only one Form W-4. Your withholding will generally be most accurate when all allowances are claimed on the W-4 filed for the highest paying job, and zero allowances are claimed for the others.

You may be entitled to additional withholding allowances based on the total dollar amount of your itemized deductions, certain tax credits, or adjustments to income. The worksheets on the Form W-4 take these items into account and help you figure your withholding. You may always claim fewer allowances than you are entitled to. This will result in your employer deducting a higher amount of federal income tax from your pay.

For additional information on completing Form W-4, get a copy of Publication 505, "Tax Withholding and Estimated Tax," and Publication 919, "How Do I Adjust My Tax Withholding?" You may call 1-800-829-3676 to request that these publications be sent to you.

View more tax tips!


This daily Tax Tip has been provided by the IRS

You may like these other stories...

Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...
IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.