If you have a job, more than likely you must pay federal income tax. Your employer is required to withhold a portion of each of your paychecks and forward the funds to the Internal Revenue Service to apply to your federal income tax. The W-4 form you fill out at the employer's request helps the employer figure out the proper amount to withhold from your checks.
Federal income tax withholding is based on several factors including your filing status, number of allowances and the IRS tax-withholding tables included in Schedule E. Each employee’s financial and personal situation is different, and your W-4 reflects your particular situation. Without the form, it’s nearly impossible for your employer to correctly calculate federal income tax withholding. This is why the IRS requires every employer to give new employees a W-4 form to complete and submit in time for their first paycheck. This is also why the IRS instructs employers to withhold at single filing status with zero allowances if an employee neglects to submit the form. Single and zero is the highest tax bracket; it remains in effect until the employee turns in a W-4.
Take the time to fill out the W-4 properly, as your federal income tax withholding depends on what you put on the form. This helps you to avoid problems when tax time comes. If you claim the wrong filing status or number of allowances, when you file your tax return you can end up owing the IRS or overpaying the agency. Use the IRS online withholding calculator to help you fill out the W-4, so none of those situations happen come tax time.
If you’re married and plan to itemize deductions such as home mortgage interest, medical expenses or charitable contributions on your tax return, complete the Deductions and Adjustments Worksheet section on page 2 to get the total number of allowances you should claim on line 5 of the W-4. To avoid having too little tax withheld from your paycheck, if you and your spouse both work and your combined income is more than $10,000, as of 2012, fill out the Two Earners/Multiple Jobs Worksheet on page 2.
Whenever you experience a change in your personal or financial life, ask your employer for a new W-4 and make the necessary changes. Let’s say you have a baby or adopt one; you can claim the child as a dependent on line D of the W-4, if your spouse hasn’t claimed the child on his W-4. You might also be able to claim allowances for child or dependent care expenses and child tax credit. Use the IRS withholding calculator to help you update the form.
To know how your employer arrived at your federal income tax amount based on your W-4, get a copy of IRS Circular E for the respective tax year online. Find the tax table that matches your pay period frequency, wages, number of allowances and filing status. The table tells you exactly how much should be taken out of your paychecks.