Whenever you start a new job your employer will have you complete a Form W-4. This form determines how much money is deducted from your paycheck for taxes. The form should be updated periodically to reflect any major changes in your life, such as getting married, buying a home, or having a baby. The major elements of Form W-4 are as follows:
- Personal Allowances Worksheet: This worksheet will help you determine the number of allowances you should claim. The more allowances you claim, the less money is withheld for your local, state, and federal taxes. Rule of thumb: if you received a big refund last year, you may want to consider increasing your allowances.
- Employee's Withholding Allowance Certificate: This section of the form is completed by you and is submitted to your employer.
- Total Allowances: This is where you record the number of allowances determined in the Personal Allowance Worksheet above. You enter that number in Box 5. Rule of thumb: single people with one job and no property should enter one. If you own property or are married with children, you may want to increase that number to two, three or more depending on your unique circumstance. However, you should consult your tax professional to be sure.
- Additional Withholdings: This is where you record any additional money you would like to withhold for taxes. You enter that number in Box 6. Rule of thumb: if you owed money the previous year, you may want to decrease your allowances or withhold additional money for taxes here.
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Disclosure: This sample form is for illustrative purposes only. Official form should be downloaded from the IRS website.