Earn Taxes

What Is the W-4? And Do You Have Tax Form W-4 Anxiety? Here’s What To Do

Maggie Klokkenga, CPA, CFP®  |  February 15, 2019

Don't let the W-4 and withholding confusion mean higher amounts owed in April. Here's a quick step-by-step guide on what to do.

You’ve been hearing a lot in the news lately that the new tax law decreased the tax brackets which meant more money in your paycheck. Sweet! However, then there was talk in the news that you may want to file a new Form W-4 to make sure that you don’t owe too much in taxes when you’re filing your 2018 tax return this year. Why the backtrack?

While tax rates may have decreased, individual tax situations did not necessarily change, so lower withholding during the year may equal a higher amount owed in April. Yikes!

So, What is Form W-4, and Why Are You Supposed to File One?

IRS Form W-4 notifies your employer the amount of federal taxes that you want withheld from your paycheck. Likewise, income-tax-paying states also have their own Form W-4s. The IRS recommends that you file a new one each time that you have a new personal or financial situation comes up, i.e., getting married or divorced, having a child, spouse now has a job, etc.

Here’s a rule of thumb: If you pay state income taxes, file both a federal W-4 AND your state’s W-4 to update your withholding.

The IRS has been recommending to taxpayers that they should check out their withholding calculator on the IRS website, www.irs.gov/W4app, if they don’t want to work on the worksheets that come with the form. (Wait, worksheets? I thought it was just one form.) Nothing is simple in Taxland, my friend. In order to accurately determine the amount of taxes you should have withheld from your paycheck, there are three different worksheets that can be completed, and you use that information to include on the W-4.

If you fail to give your employer a properly completed Form W-4, the employer is required to withhold federal taxes as if you filed as a single taxpayer with zero exemptions. What does that mean? It means that you’ll have the maximum amount of federal taxes withheld (excluding any additional dollar amount that you may list as well on the W-4).

More on withholding the maximum amount in a minute. Don’t haphazardly/recklessly file a W-4 though just to get it off your plate; you could be subject to a $500 penalty if you turn in a W-4 that has less taxes withheld than required without a good reason.

‘But I’ve Gotten Burned in the Past and Owed a Lot When It Was Time to File My Tax Return. Is There Anything I Can Do?’

Yes. As noted above, if you’re a single taxpayer, file single with zero exemptions. That tells your employer to withhold the highest amount of federal taxes within their payroll tables. If you’re married, check the box that states “married but withhold at higher single rate” with zero exemptions, and you’ll also have the maximum amount of federal tax withheld.

SUBSCRIBE: Looking for more financial insights delivered right to your inbox? Subscribe to HerMoney today!


Next Article: