Maybe you started your first job or maybe you gave up the freelance life for full-time employment. Whatever your scenario, if you find yourself filling out a W-4 for the first time, you may be a touch confused by all the fields, worksheets, and forms. Yes, the IRS can make things confusing. Let’s take it one step at a time.
Enter your personal information
When you start a new job as an employee, your new employer will give you a W-4. Your W-4 is a four-page IRS form that basically tells your employer how much money to take out of your paychecks to cover taxes—and it was modified in 2020 to help people request the most accurate tax withholdings possible.
Step 1: Enter Personal Information should be fairly easy. Enter your name, your address, your Social Security Number (now’s a good time to memorize your SSN, if you haven’t already) and indicate whether you are single, married filing jointly, or the head of a household.
The “head of household” term is probably the only confusing part of this section, but the IRS explains what “head of household” means right on the form: “Check only if you’re unmarried and pay more than half the costs of keeping up a home for yourself and a qualifying individual.” If that’s not you, don’t check the box.
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A note about exemptions
If you are exempt from tax withholding, you only need to complete Step 1(a), Step 1(b), and Step 5 — and then you can write “Exempt” on Form W-4 in the space below Step 4(c). Generally, you can only claim exempt if you don’t have any tax liability, meaning you didn’t owe any tax last year due to earning income, or you didn’t need to file a tax return at all.
You definitely don’t want to file exempt if you’re not actually exempt, though. You won’t have any federal income tax withheld from your paycheck, so when you do your taxes in April, you’ll have a giant tax bill that includes late payment penalties.
Count the number of jobs held by you and your spouse (if applicable)
Here’s where it starts to get a little more confusing. Step 2: Multiple Jobs or Spouse Works, asks you to “Complete this step if you (1) hold more than one job at a time, or (2) are married filing jointly and your spouse also works.” If neither of these scenarios apply to you — that is, if you only have one job or if your spouse is unemployed — you can skip this section. Easy-peasy!
If you and your spouse have jobs that come with roughly equivalent salaries, you can also skip this section — after you check Box C indicating that you each have one job and you’re both earning the same amount. (Make sure your spouse checks Box C on their W-4 as well.)
If you hold multiple jobs or if you and your spouse both have jobs with disparate salaries, you’re going to want to turn to Page 3 and complete Step 2(b)—Multiple Jobs Worksheet — or maybe you’re going to want to skip the worksheet and use the IRS’s online tax withholding estimator, which asks the same questions and doesn’t require you to calculate the answers yourself. (I highly recommend using the online estimator.)
Either way, you’re probably going to end up with an “extra withholding” number, which represents the amount of extra money you’d like withheld from each pay period to help prevent you from owing additional taxes when you file your tax return. (If you’re using the online estimator, this number will be located under the subhed “How to Adjust Your Withholding.”) This extra withholding number goes on your W-4 form under Step 4, line 4(c).
Claim your dependents (if any)
If you have multiple jobs, or if you are married filing jointly and you and your spouse each have a job, you’re only going to complete Step 3: Claim Dependents for one of these jobs. The IRS recommends completing Step 3 on the W-4 form associated with the highest-paying job; on your (or your spouse’s) other W-4 forms, leave it blank.
Step 3 is pretty straightforward. If your income will be $200,000 or less ($400,000 or less if married filing jointly), then multiply each qualifying child under age 17 by $2,000 and each additional dependent by $500. Add up the numbers, write down the total, and you’re done.
Make other adjustments (if applicable)
Step 4 (optional): Other Adjustments is, as the name implies, optional. It’s also fairly confusing, so let’s walk through it together.
If you have multiple jobs, or if you are married filing jointly and you and your spouse each have a job, you should only fill out lines 4(a) and 4(b) for one of these jobs. Once again, the IRS recommends filling out these lines on the W-4 form associated with the highest-paying job; on your other W-4 forms, leave those two lines blank.
Line 4(a) asks you to tally up all other taxable income not earned from jobs, such as interest, dividends or retirement income. That way, you can deduct the necessary tax out of your paycheck now so you don’t have to pay it later.
Line 4(b) asks you to turn to Page 3 and fill out Step 4(b)—Deductions Worksheet. This worksheet helps you determine whether you’re better off taking the standard deduction or itemizing your deductions. (Important note: That link goes to an article reflecting the 2019 tax year; the standard deductions have increased for 2020.) You’ll also be able to tally up any other applicable tax deductions, such as student loan interest or deductible IRA contributions.
Once you’ve filled in 4(a) and 4(b), all that’s left to do is fill out line 4(c), which indicates the amount of additional tax you’d like withheld each pay period. If you already calculated that number when you completed Step 2, you’re done! If not, I recommend using the IRS online tax withholding estimator to determine whether you need any extra withholding.
Sign your W-4 and turn it in
It’s finally time for Step 5: Sign Here. Sign your worksheet and hand it over to your employer. And that’s it! You should have just the right amount withheld from your paycheck. You won’t owe a bunch of money in April but you won’t get a huge refund, either.
Whenever you run into any major life changes, you’ll want to update this form, too. Obviously, if you get a new job, you’ll fill out a new one, but if you get married, have a kid, or get a second job, you’ll ask for a new W-4, then adjust accordingly.
This post was originally published in 2017 and was updated in 2019 to provide more current and accurate information. It was updated again by Nicole Dieker on 7/9/20 with the following changes: updated links, fresh headings to reflect current style and updated information to reflect current tax laws.
