The Internal Revenue Service requires employers withhold taxes from your salary to ensure that you pay taxes as you earn and don’t have a big tax bill when you file your tax return. Employers rely on the information you provide on the W-4 form you fill out. You need to update the W-4 tax withholding form whenever your tax situation changes.
Payroll Tax Withholding
The amount of money you earn influences paycheck withholding. Another factor is your filing status. A married worker who files a joint tax return has taxes withheld at lower rates than a single person or someone who is married but files separately and makes the same salary. The number of withholding allowances you claim determines how much of your pay is subject to income tax. Your payroll department knows when your income changes but must rely on you to update other information by changing your W-4 form when necessary.
Reasons to Change a W-4
If you get married, you may file a joint tax return with your spouse and can change your federal W-4 status to "married" to take advantage of the lower withholding rate. If you get divorced, you are single again and should change your W-4 status so that enough tax is taken out of your pay. A birth or adoption means you can claim at least one additional withholding allowance. As children get older, eligibility for withholding allowances for child care and the Child Tax Credit go away. Changes in non-wage income, such as dividend earnings, may make altering your W-4 useful. You can ask an employer to withhold an extra amount to cover taxes on non-wage income instead of filing estimated tax returns. Individuals who qualify to be tax exempt must submit updated W-4s each year even if there is no change, because exemptions expire every February.
Impact of Changing W-4s
When you indicate single or "married but withhold at higher single rate" as your filing status on a federal W-4, more federal income tax is withheld than if you are married and file a joint return. This decreases your take-home pay, but the additional tax withheld reduces what you owe when you file your tax return. Adding or subtracting withholding allowances alters the size of your paycheck. A withholding allowance is an amount that is excluded from gross wages before income tax is figured. Each withholding allowance is equal to an annual base amount divided by the number of pay periods in a year.
Completing the W-4 Form
The IRS recommends that you change W-4 forms within 10 days of any event that alters your filing status or the number of allowances you can claim. Get a blank W-4 form from your employer and use the worksheet to determine the number of withholding allowances. On the federal W-4 form, enter your name, Social Security number, address and filing status on lines 1 through 4. Enter the number of withholding allowances on line 5. Use line 6 to request extra tax to be taken out of your pay. If you qualify for exemption from income tax withholding, write “Exempt” in box 7. Sign and date the form and give it to your employer. On the state W-4 form, enter your name, Social Security number and address on the lines provided. Enter the number of basic withholding allowances on line 1. Enter the number of additional withholding allowances on line 2. Use line 3 to request extra tax to be taken out of your pay. If you qualify for exemption from income tax withholding, check the “Exempt” box. Sign and date the form and give it to your employer.