Payroll and Taxes

5 Things You Need to Know About the W-4 Form

Cortez Ratke
January 20, 2024
min read

Ready to welcome new employees to your team? Well, get ready to get to know the W-4 form as you'll need to collect it from your newly hired employees.

In fact, W-4 forms are an important part of the employee onboarding process. As a business owner, it's essential to grasp their purpose and assist your new employees in completing them smoothly.

So, read on to find out what a W-4 form is and 5 main things you need to know about W4s!

1. What is Form W-4?

Form W-4 is an Internal Revenue Service (IRS) document that employees in the United States use to indicate their withholding preferences for federal income tax. When employees start a new job or experience significant life changes, they are required to fill out a W-4 form. The information provided on the form helps employers determine the appropriate amount of federal income tax to withhold from the employee's paycheck.

The form covers various aspects, including personal information, filing status, dependents, additional income, deductions, and credits. By accurately completing the W-4, employees ensure that the right amount of tax is withheld, preventing potential surprises at tax time. The goal is to align the tax withholding with the employee's anticipated tax liability, avoiding over-withholding or under-withholding.

What are the Main Parts of Form W-4?

Here are the main parts of the W-4 form:

Personal information- Employee's name, address, Social Security number, and filing status (e.g., Single, Married, Head of Household).

Multiple jobs or spouse works- Check this box if the employee has multiple jobs or if their spouse is employed.

Dependents- Indicate the number of dependents the employee expects to claim for the Child Tax Credit and Credit for Other Dependents.

Other adjustments- Specify additional withholding adjustments, such as extra withholding or deductions.

Deductions- Enter estimated deductions for the year, such as mortgage interest, student loan interest, and state and local taxes.

Extra withholding- If the employee wants additional tax withheld from each paycheck, they can enter an extra amount here.

3. When do Employees Need to Complete the Form W-4?

Employees usually need to complete Form W-4 in the following situations:

  • New hire

When an employee is newly hired, they are required to complete a Form W-4 as part of the onboarding process. This form helps the employer determine the correct federal income tax withholding from the employee's wages.

  • Change in a personal or financial situation

If an employee experiences a significant life event that affects their tax situation, such as getting married, having a child, or buying a home, they may need to update their W-4 to ensure the appropriate amount of tax is withheld.

  • Change in employment status

If there is a change in an employee's employment status, such as transitioning from part-time to full-time or vice versa, they may need to update their W-4 to reflect the change in income.

  • Adjustment to tax withholding

Employees can voluntarily update their W-4 at any time if they want to adjust the amount of federal income tax withheld from their paychecks. This might be necessary if they anticipate owing taxes at the end of the year or if they want to maximize their take-home pay.

  • Annual review

It's a good practice for employees to review and, if necessary, update their W-4 annually. This ensures that their withholding status aligns with their current financial and tax situation.

4. What Happens if an Employee Doesn’t Complete or Update Form W-4?

If an employee doesn't complete or update Form W-4, employers are required to follow certain guidelines to determine the appropriate federal income tax withholding. Here's what employers should do in such situations:

- Default status

If a new employee fails to submit a completed W-4, the employer is instructed to withhold taxes as if the employee is single with no withholding allowances.

- Existing employees without updates

For existing employees who haven't submitted an updated W-4, employers can continue to use the last valid form on file. The IRS recommends withholding based on the information provided in the employee's most recent W-4.

- Exemption from withholding

If an employee fails to provide a valid W-4, the employer must treat the employee as if they are exempt from withholding. This means withholding no federal income tax from the employee's wages.

5. Who is Responsible for the W-4 Form?

The responsibility for completing and updating Form W-4 lies with the individual employee. It is the employee's responsibility to provide accurate and up-to-date information on the W-4, reflecting their current tax situation and personal circumstances.

However, employers play a crucial role in the process by facilitating the distribution of W-4 forms to new hires and reminding existing employees to update their forms when necessary. Employers are responsible for implementing the federal income tax withholding based on the information provided by employees in the W-4.

Bottom line

These are the five crucial aspects of W-4 forms. As an employer, once you obtain the completed W-4 forms, you can proceed to generate W-2 forms. 

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