3 Things Every Employee Should Know about the W-4 Form

The W-4 form is a normal part of employee payroll. Every new worker completes one of these forms at the start of his or her employment; the employer keeps the form on file and uses it as a guide for withholding and paying federal income, Social Security, and Medicare taxes.

Unfortunately, people far too often fill out W-4 forms without knowing what they are all about. As with anything having to do with taxes and the IRS, not knowing makes it difficult for employees to protect their own best interests. To that end, there are three things that every employee should know about the W-4. They are explained below. As an employer, you can help your employees understand what it is they're doing when they fill out the W-4. Annual reminders can also be very helpful just in case employees forget from year to year.


1. Available Allowances

The IRS allows employees to claim a certain number of allowances that will reduce the amount of tax withheld. Employers sometimes refer to these allowances as 'exemptions'. Every worker is allowed at least one allowance for him or herself; additional allowances are included for spouses and dependents. Employees can choose extra allowances if they plan to:

  • file their taxes as the head of household
  • itemize deductions on their federal tax returns
  • claim credits for childcare expenses.

What employees must understand is that more allowances translate into less money being withheld and paid. If they end up not paying enough taxes throughout the year, they will have a tax bill due when they file their taxes in the spring. The idea here is to find just the right number of allowances that covers all of the required taxes but does not give the government extra money that has to be refunded in the spring.


2. FIlling out a New W-4

Employees can complete a new W-4 if their circumstances change. We recommend a review of the W-4 at least on an annual basis. If any significant life changes do indicate the number of allowances should be changed, a new form can be completed at any time.

People tend to fill out new W-4 forms after getting married, getting divorced, adding a child to the family, or simply because they want more withheld so that they don't come up short.


3. Exempt from Withholding

Lastly, employees should know that they may be exempt from withholding altogether. Complete exemptions are not the norm, but employees should be aware of them nonetheless. The main reason a worker might be fully exempt is a lack of sufficient income. In other words, if an employee finishes the year with a zero income tax liability and it is likely the same scenario will be repeated in the coming year, that person can fill out a new W-4 to claim the full exemption.

This does mean that if an employee figures things incorrectly, there may be a tax bill due in the spring. Anyone thinking of claiming a full exemption should consider this very carefully. The last thing the worker wants or needs is a spring tax bill. On a positive note, fines and penalties will not be assessed just as long as the tax bill is paid in full by April 15.

The W-4 form is a standard part of employee payroll. As an employer, you have a responsibility to collect W-4's from all of your qualifying workers. We encourage you to educate all new workers about this simple form as well as recommending annual reviews just in case circumstances change.


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