The W-4 form is one of the most important tax documents you complete when starting a new job or when you want to update your tax withholding. It tells your employer how much federal income tax to withhold from your paycheck. The IRS redesigned the W-4 form in 2020 to make withholding more accurate and transparent, eliminating the old system of withholding allowances. This new version walks you through a series of steps to ensure you withhold the correct amount of tax based on your personal financial situation.
Step 1: Personal Information
This step is straightforward and requires basic information: your name, Social Security number, home address, and filing status. Filing status is critical because it determines which tax brackets and standard deduction amounts apply. The options available on the W-4 form are Single or Married Filing Separately, Married Filing Jointly, and Head of Household.
Step 2: Multiple Jobs or Spouse Works
This applies only if you have more than one job or are married and your spouse also works. This section helps ensure that tax withholding accounts for all sources of income. The IRS provides three methods to complete this step:
1.Using the IRS’s online Tax Withholding Estimator (recommended for the most accuracy).
2.Completing the Multiple Jobs Worksheet (found on page 3 of the W-4).
3.Checking the box in Step 2(c) if there are only two jobs in total and both have similar pay.
Choosing the correct method is crucial to avoid under-withholding, which could result in owing taxes at the end of the year. You can also check your prior year’s tax return, particularly Form 1040, Line 11 (Adjusted Gross Income), to estimate total income and compare with withholding.
Step 3: Claiming Dependents
This step allows you to claim the Child Tax Credit or the Credit for Other Dependents if you qualify. The instructions state that you should enter $2,000 per qualifying child under 17 and $500 for other dependents. However, not everyone will receive the full credit amount due to income limitations. The phase-out begins at $200,000 for single filers and $400,000 for those married filing jointly. If you are unsure whether you qualify, check your previous tax return, specifically Form 1040, Line 19, which shows the Child Tax Credit.
Step 4: Other Adjustments
This step is optional and allows you to fine-tune your withholding based on additional income, deductions, or extra withholding amounts you want to specify. It is broken into three parts:
– 4(a): Other Income (Not from Jobs) – This is for additional income sources such as interest, dividends, or retirement distributions that are not subject to withholding. You can look at Form 1040, Line 2b (Taxable Interest) and Line 3b (Ordinary Dividends) for reference.
– 4(b): Deductions – This allows for adjustments if you itemize deductions instead of taking the standard deduction, which is rare under current tax laws. If your itemized deductions exceed the standard deduction ($15,000 for singles in 2025, $30,000 for married couples), enter the additional deduction amount here. This can be found on Schedule A of Form 1040.
– 4(c): Extra Withholding – You can request that additional tax be withheld each pay period. This is useful if you prefer to cover potential tax liabilities throughout the year instead of making estimated tax payments.
Step 5: Signature and Submission
The W-4 Form requires your signature to confirm the accuracy of the information provided. Your employer cannot process it without this signature. Once completed, submit the form directly to your employer, not the IRS. Your employer is responsible for updating payroll systems to reflect the withholding changes.
When to Update Your W-4
You should update your W-4 whenever your financial situation changes. Common reasons include:
– Getting married or divorced.
– Having a child or no longer claiming a dependent.
– Taking on a second job or losing a job.
– A significant change in income, deductions, or tax credits.
One common misconception is thinking you need to submit a new W-4 when changing retirement plan contributions from pre-tax to Roth or vice versa. Withholding only applies to taxable income, which means that the system your HR department is using will automatically increase or decrease withholding anytime you switch the type of retirement plan contributions.
For advice, book an individual financial planning session with a Francis financial planner. Our financial planners are exclusively engaged by your employer to offer education, advice, and coaching on all money matters. Visit FrancisWay.com, to explore the features available to you in your “Participant Portal.” Better yet, download the free Francis app to select a planner and message them to get started!
