The amount of income tax your employer withholds from your pay depends on the amount you earn and the information you have provided your employer on Form W-4. Form W-4 includes information to help you and your employer determine the correct amount of tax to withhold.
When you start a new job, you must fill out Form W-4 and give it to your employer. If you need to change your filing status or number of allowances at any time, you should fill out a new Form W-4 and give it to your employer. You can submit a new Form W-4 whenever you wish to change your withholding. It is important to have enough income tax withheld to avoid an underpayment penalty when you file your tax return.
Since Form W-4 cannot account for all situations, you may need to factor additional circumstances when determining the correct amount of withholding. Some common situations that may cause incorrect withholding:
- You are married and both you and your spouse work.
- You have more than one job at a time.
- You have non-wage taxable income (interest, dividends, alimony, etc.).
- You will owe additional amounts with your return (self-employment tax, etc.).
- Your earnings exceed $130,000, or $180,000 if your filing status is married filing jointly.
- You only work part of the year.
- You change the number of your withholding allowances during the year.
Completing Form W-4
Marital Status - Married persons qualify for a lower tax rate by checking the "Married" box on Form W-4. Check this box if all the following are true:
- Your filing status will be married filing jointly or qualifying widow(er).
- You will be considered married for the whole year.
- Neither you nor your spouse is a nonresident alien.
Withholding Allowances - The more allowances you claim, the lower your withholding rate will be. The number of allowances you can claim depends on:
- How many exemptions you can take on your tax return
- Whether you have income from more than one job
- What deductions, adjustments to income, and credits you expect to have in the tax year
- Whether your filing status will be head of household
- If your filing status is married filing jointly, whether your spouse works and claims allowances on his or her Form W-4
If you deliberately and knowingly make false claims on your Form W-4 in an attempt to reduce or eliminate proper tax withholding, you may have to pay a penalty of $500 if:
- You make statements or claim allowances on your W-4 that reduce the amount of tax withheld.
- You have no reasonable basis for the statements or allowances at the time you fill out the W-4.
There is also a criminal penalty for supplying false information on your W-4. The penalty upon conviction can be a fine of up to $1,000 or up to one year imprisonment, or both.
An error or honest mistake will not result in these penalties.