The Carr Report: Understanding how to complete Form W-4 Employee Withholding Certificate

A W-4 form, or “Employee’s Withhold­ing Certificate,” is an IRS tax document that employees fill out and submit to their employers. Employers use the information on a W-4 to calculate how much tax to withhold from an employ­ee’s paycheck.

When you complete Form W-4, you’re instructing the employer on how much taxes to withhold from each paycheck. The W-4 Form takes into account vari­ous things including: filing status, mul­tiple jobs adjustments, amount of cred­its, amount of other income, amount of deductions, and any additional amount to withhold from each paycheck. Com­pletion of this form helps to compute the amount of federal income tax to deduct and withhold from your paycheck.

Employees are required to fill out W-4 forms because the IRS requires people to pay taxes on their income throughout the year, as they earn it. If you have too little tax withheld, you could owe a sur­prisingly large sum to the IRS in April, plus interest and penalties for under­paying during the year.

In 2020, the W-4 form changed to make the form easier to complete and to help individuals withhold federal in­come taxes more accurately from their paychecks. As with most things being changed to make it easier, it turns out to be more complicated for the end user.

Very few people understand how to accurately complete the W-4 Form. How do I know? I know because very few people break even when they file their taxes. Every return I’ve ever completed, the tax filer either gets a refund or they have a balance due. It’s an easy conversa­tion talking to people when they get a tax refund. Especially when they receive more than they an­ticipated. This group of people thinks you’re the best tax professional in the world. It’s a gruesome conversation talking to people who owe taxes. They begin to second-guess you and think you did something wrong. You have to take the time to explain how much they owe, why they owe, payment options, and how to avoid owing taxes next tax sea­son. Without fail the advice given is you need to modify your W-4 form.

The truth of the matter is whether you get a refund or you have a balance due, your W-4 form needs to be tweaked. During tax time when people get a re­fund—particularly when it’s $2,500 or more, I don’t put my financial planning hat on informing them that it’s not pru­dent to lend the IRS money throughout the year only to receive it in the form of a tax refund with zero interest earned. I simply allow them to enjoy their lump sum of cash. When I’m do­ing financial coaching and I’m working with people who are living paycheck to paycheck because the money is tight, the first ques­tion I ask is, did you receive a tax refund last year? I go on to explain to them that they need to create some wiggle room in their budget. One easy way to do that is to modify their W-4 form and recognize that tax refund as extra money in every paycheck.

Your W-4 Form isn’t a “complete it when you start a new job then forget about it every year thereafter.” This doc­ument is fluid. As your marital status, filing status, dependents, income, in­come sources, charitable contributions, etc., changes, so should it. You should consider reviewing your W-4 Form at work yearly to ensure no surprises next tax season.

The IRS actually does a great job de­tailing how to complete this form on the W-4 Form itself. In this article, I’m going to provide step-by-step instructions on completing the W-4 Form.

Completing the IRS Form W-4 accu­rately ensures that the right amount of federal income tax is withheld from your paycheck. Whether you’re starting a new job or adjusting your withhold­ings due to life changes, here’s a clear, step-by-step guide to filling out this im­portant document.

Step 1: Personal Information

Enter Your Details: Start by provid­ing your full legal name, address, social security number, and filing status (sin­gle, married filing jointly, married filing separately, or head of household). This information is crucial as it affects the calculation of your tax liability.

Step 2: Multiple Jobs or Spouse Works

Adjust for Multiple Incomes: If you or your spouse hold more than one job, or both of you work, precise tax with­ holding requires attention.

Simple Adjustment: If both jobs have sim­ilar pay, check the box in Step 2(c). This op­tion works best for dual-earner households.

Detailed Adjustment: Alternatively, use the IRS’s Tax Withholding Estimator online or complete the Multiple Jobs Worksheet provided with the form for more accurate results.

Step 3: Claim Dependents

Dependent Credits: If you have depen­dents, calculate if you qualify for Child Tax Credit and credit for other dependents. This step helps reduce the tax withheld based on eligible dependents.

Step 4: Other Adjustments

Other Income: If you expect to earn ad­ditional income not subject to withholding (e.g., interest, dividends), enter this in Step 4(a).

Deductions: If you plan to itemize de­ductions instead of claiming the standard deduction, estimate these and enter the amount in Step 4(b). This section helps ad­just withholding to match your tax liability more closely.

Extra Withholding: To further tailor your withholdings, specify any additional tax you want withheld from each paycheck in Step 4(c). This might be useful if you have other income that increases your tax bill.

Step 5: Sign and Submit

Finalize the Form: Sign and date the form. Without your signature, the W-4 will not be valid. Return the completed form to your employer’s payroll or HR department, which will adjust your withholdings accord­ingly.

Additional Tips

Annual Review: Re-evaluate your W-4 annually or after significant life changes (e.g., marriage, childbirth, or a change in in­come).

Privacy Concerns: If you prefer not to disclose multiple jobs to your employer, us­ing the IRS Tax Estimator and adjusting your withholdings privately or through ad­ditional tax payments might be a better op­tion.

Keep Informed: Tax laws can change, so stay updated on any modifications that might affect your tax situation.

By carefully completing the W-4 form, you can ensure that your tax withholdings match your actual tax liability, preventing surpris­es at tax time and helping you manage your finances better throughout the year.

(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website at www.damonmoney­



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