Whenever you get a new job, your new employers have you fill out that W4 form. But if no one has told you what you need to do, it can be super confusing. Don't end up with a huge tax bill just because no one told you about W4 forms. Here's what you need to know.
What's the W4 Form for?
The W4 form tells employers how much of your wages to withhold for federal income tax.
If you shoot too low, then you could end up 1) enjoying more money on your paycheck 2) plus, a larger tax bill when tax season (April) rolls around. 3) there is a possibility that you could be fined for not withholding
If you shoot too high, then you could end up 1) having less money each month on your paycheck 2) getting back a large tax return in April
Ideally, you estimate accurately so that you can 1) get the most out of each paycheck 2) not have a huge tax bill
What should you do?
If you have no idea how much tax you need to withhold then you can use the IRS tax estimator tool.
To use this tool you will need:
paystubs for all jobs (spouse too)
Other income info (side jobs, self-employment, investments, etc.)
Most recent tax return
If you've either had a huge tax bill or a huge tax return then you may need to just adjust your withholding accordingly. You are free to change your withholding at anytime by resubmitting your W4 to your employer. You may need to update your W4 if you had a life change such as: children, marriage, divorce etc.
Also, when your employer sends you a W2 form in January- keep that safe! Your W2 is your record of how much federal income tax was paid. It's very important for filing your taxes.
Summary:
It's not that scary. Take a deep breath. There are only a few questions on a W4 form. If you need help estimating how much you should withhold- use the IRS' tool: click here
You can change your withholding anytime.
It's a good idea to update withholding if you have a life change such as children or marriage/divorce.
Reach out if you have any questions, we are happy to help!
This blog post is not a substitute for legal or financial advice and is not liable for any misinformation that may have been provided. This information has been provided by the IRS newsletter.
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