Definition: Form W-4 is the IRS report that employees fill out to calculate the amount of tax withholding that should be taken out of their paychecks each period. Employees fill out this form and give it to their employers, which in turn file it with the IRS.
The W-4 form allows employees to calculate the proper amount of withholding based on some of their personal tax information. Employees use a worksheet to calculate their total number of exceptions for filing purposes including marital status, children, and dependents. Based on the number of exemptions, the employee fills in an appropriate amount of allowances that are used to compute the total amount of withholdings for the period.
Form W-4 is a simple two-page report with a worksheet on both the first and second pages. The first page lists a worksheet to add up the total number of allowance followed by the employee’s personal information like name, address, social security number, and marital status.
The second page has a worksheet that is required if the employee can itemize on his or her tax return. Itemized deductions include mortgage interest, property taxes, medical expenses, charitable contributions, and unreimbursed business expenses. This page is used to help calculate additional allowances based on the personal financial life as well as number of household earners of the employee.
Both of these worksheets are added up to come to a total number of allowances. Based on the number of allowances, the assigned withholdings may increase or decrease. More allowances create more tax deductions and result in a decreased amount of withholdings. Conversely, a smaller number of allowances will require higher amounts of withholdings.
What is Form W4 Used For?
The W-4 form also has an option to withhold an additional amount of taxes if the employee desires. This box is listed on the first page. This form helps to calculate the numbers on the W-2.