5 Essential Steps for Correctly Filling Out Your Federal W-4 Form
In 2020, the federal government released a new Employee’s Withholding Certificate W-4 form. Although the form has been around for a few years, misunderstandings persist. Incorrect information on this form can have an unforeseen impact on your year-end tax liability. This can occur when you file your personal income tax return.
Below is a quick summary and comments regarding some of the steps.
Step 1 – basic demographic information, including filing status. Note there is an addition of head of household status instead of just married or single.
Step 2 – this step on the new form seems to be an area that is often overlooked. This box is for married people where both spouses work or for people with multiple jobs. It is important that you check this box if either of these situations is applicable.
If you do not check this box, the calculations change. This happens if you have selected married filing jointly as your filing status. They will assume the employee is the only income supporting a family of 2 people. As a result, there will be fewer taxes withheld from their paycheck.
If you have a second job and do not check this box, it will be assumed your second job is your only income. Most likely, there will be very little taxes withheld. This will impact your tax liability at the end of the year.
Step 3 – instead of putting the number of withholding allowances, you have to do the math. Enter a dollar amount for your dependents. If no children or ‘other dependents,’ skip this step.
Step 4 – this step is only if you have significant other income (e.g., self-employment on the side) or other deductions. You can also use this section to specify an extra dollar amount. Withhold this amount from each check.
Step 5 – you need to sign and date.
Steps 1 and 5 are the only required sections. However, it is always suggested to read through the instructions provided.
It is never a bad idea to review your withholding’s on the Federal W-4 form on file with your employer. The W-4 form does ultimately affect your overall tax bill at the end of the year.
Exemption from withholding: You may claim exemption from withholding for 2025 if you meet the following conditions. You had no federal income tax liability in 2024. You also expect to have no federal income tax liability in 2025. If you claim exemption, you will have no income tax withheld from your paycheck. You may owe taxes and penalties when you file your 2025 tax return.
To claim exemption from withholding, certify that you meet both of the conditions above. Write “Exempt” on Form W-4 in the space below Step 4(c). Then, complete Steps 1(a), 1(b), and 5. Do not complete any other steps. The exemption claim is valid for only one year. You will need to submit a new W-4 for the next tax year.
The IRS offers the W-4 form on its website: https://www.irs.gov/pub/irs-pdf/fw4.pdf