"Employee's Withholding Certificate" known as W-4 is a form that allows employers to withhold and remit taxes for employees. This important document is crucial to tax processes but many are unfamiliar with how it works and what information it should contain.
Once filled, the W-4 doesn't need to be adjusted yearly if there is no change of job. If you are already employed then you don't need to fill out a new W-4 even though sometimes the IRS makes certain adjustments to the form. If you are changing your job then this will require you to fill out a new W-4.
The current W-4 now has fewer sections than the previous version. If you are not switching jobs or taking on more, then your W-4 doesn't need any adjustments. There were seven sections in the old W-4, however, effective since December 2020, the new W-4 now has 5 sections that an employee must fill out to allow the employer to withhold and pay taxes on their behalf.
How to Fill Out Form W-4
1. Personal Information Section
Here, you are required to input personal information such as;
Social security number
Tax filing status - indicate if you are filing as single, married, or head of household
2. Report Multiple Income Streams
If there are multiple income streams a taxpayer might want to withhold more or less from a first job and support with the income from a second job or alternative income. Overall, ensure you report all jobs here.
But if you do not want your employer to know you work multiple jobs, then here is a trick: don't indicate the extra job(s) on the W-4, however, you'd have to make estimated tax payments directly after you are paid.
3. Indicate and Claim Dependents
This part is designed to allow you to indicate tax dependents, if any, and to state the number. Dependents may be your child / children or relative.
4. Optional Section
This is an optional section. If you feel the need to indicate reasons the amount to be withheld should reduce, do it here. Also if you want extra tax withheld, indicate it here too. The new W-4 now allows you to indicate expected deductions that will be itemized in the tax return.
Sign the form and include a date. On completion, give the form to your employer or payroll team. The above are the 5 sections of the new W-4 form and how you can fill it out.
When to File a New Tax Form W-4
As mentioned above, a change of job would warrant filling out a new W-4. Other life events that may affect your taxes and require you to fill out a new form are marriage, property purchase, additional freelance jobs, income raise or cut, or having a dependent( either a qualifying child or relative you support financially).
If you start a new job in the middle of the year, the amount to be withheld will be calculated for a year and this may adversely affect your income until a refund is made the following year and things go back to normal. The alternative, however, is to write to your employer to use the part-year tax withholding method to calculate the amount to be withheld.
In conclusion, the W-4 must be filled out by every employee correctly for accurate tax payments throughout the year. An error can lead to undertaking taxes which cause you to incur penalties, or overpayment that may affect your budget (although you will get a refund the following year).
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