So you’ve started a new job or internship, and your employer hands you a stack of forms to complete on your first day. One of which will most likely be the good ole W-4 Form! Okay, not so exciting after all. But besides the fact that there’s a bunch of words and weird numbers on the page, I’m sure you’re wondering what it’s all about. We know you have a zillion questions, so this article is for you. Check out our list of FAQ’s and our answers below!
1. What is a W-4 form?
The W-4 Form, is also known as the Employee’s Withholding Allowance Certificate.The Internal Revenue System, you may know as the IRS, issues the W-4 form to your employer to determine how much money needs to be withheld from your paycheck for federal taxes. So unless you want to end up like that guy from the Blade movies, you want to make sure you complete this form accurately. In the long run, it will prevent you from overpaying your taxes and put less of a burden on you during tax time.
2. What is an allowance?
As you are preparing to complete your W-4 form, you will see that allowances are used to determine your dependencies. The more allowances you claim, the less money will be withheld from your paycheck. You can report an allowance for yourself, a spouse, and each dependent which may mean a child that you ACTUALLY support. Not claiming other kids on your income tax! You can take a look at the personal allowances worksheet for more information.
3. I’m a college student, does that mean I’m exempt from tax withholding?
To be exempt from withholding means your employer will not withhold any funds from your paycheck for federal income tax. You can claim exemption if you have had no income tax liability in the past 12 months and do not expect to owe any tax for the completion of the current year. Be sure to take into consideration whether or not you are working while you are in school, and the amount of money you will make by the end of the year.
4. I made a mistake on my form and have received a paycheck(s) from my employer already. Is it too late to update my form?
It is not too late to update your form. The IRS actually recommends updating your W-4 whenever a major life event occurs, for example marriage, child adoption, or job loss to name a few. These types of occurrences can have a direct effect on the taxes you owe and potentially save you money.
5. What’s the big picture? I filled out the form, now what?
Managing your personal finances is essential now that you are out in the real world. Your W-4 Form will very well affect the bottom line amount that you actually see get deposited into your bank account. It’s important to use the number after taxes when budgeting your monthly expenses so you won’t run into any surprises.