The W-4, Step by Step: What Each Box Does to Your Paycheck
You filled out a W-4 on your first day at work, probably in about thirty seconds. It decides how much federal income tax comes out of every paycheck you get there.
Get it wrong one way and you owe at tax time. Get it wrong the other way and you're lending the IRS money all year for free.
Here's what each part actually does.
Step 1: Your filing status
Single, married filing jointly, or head of household. This picks the tax brackets your employer uses.
Head of household has lower withholding than single, but only use it if you'll really file that way: unmarried, paying more than half the cost of keeping up a home for a qualifying person.
Step 2: Two jobs, or both spouses work
This is the step most people skip, and the one that most often causes a surprise bill.
Each employer withholds as if its paycheck were your only income. But two incomes added together reach higher tax brackets than either one alone, so too little gets withheld.
Step 2 fixes that. The simplest way is the checkbox in Step 2(c): check it on the W-4 for both jobs (yours and your spouse's, or both of your own jobs). Each employer then withholds more, as if each job were half your household's income.
The checkbox works best when the two jobs pay about the same. If they pay very differently, the IRS's Tax Withholding Estimator gives a more exact answer.
Step 3: Dependents
This is a dollar amount, not a number of people: the credit you expect for your children and other dependents.
On the current form it's $2,200 for each child under 17, plus $500 for each other dependent. Add them up and write the total.
If you and your spouse both work, put the dependents on one W-4, usually the higher-paying job. Claiming them on both lowers withholding twice.
Step 4: Other adjustments
- 4(a) Other income: income with no withholding, like interest or a side job, if you'd rather have the tax on it come out of your paycheck.
- 4(b) Deductions: deductions beyond the standard deduction that you expect to take, such as the new overtime deduction. Less is withheld to match.
- 4(c) Extra withholding: a flat dollar amount taken out of every paycheck, on top of everything else. The easiest fix if you owed last year.
How to tell if yours needs a change
Look at last year's return:
- You owed money: add extra withholding in 4(c), or check Step 2 if two of you work.
- You got a big refund: you could take home more each paycheck by lowering 4(c), or by using 4(b) for deductions you know you'll have.
You can hand your employer a new W-4 any time. It takes effect within a pay period or two.
Seeing it before you change it
IncomeSync works out each paycheck the way payroll does, from the IRS withholding tables and your W-4, and estimates your refund or what you'll owe at year end. Change a W-4 setting and you see the effect on every paycheck for the rest of the year before you hand anything to HR. See how it works.
This is general information, not tax advice. For your own situation, the IRS Tax Withholding Estimator or a tax professional can help.