Know These Fundamentals of The W-4 Form: Improve Your Tax Return!
A W-4 form is a form you fill out with your employer. Usually, you fill out the form at the start of your job, but you may fill out a new form when you have new lifestyle changes such as marriage, children, moving, or a new job. You may also fill out the form in between your pay periods if you feel adjustments need to be made. It’s a good idea to check your taxes at the beginning of the year or if you hear of any tax changes as well.
Below we’ll discuss the basics of a W-4 tax form and what it means for you during the tax season.
Below we’ll discuss the basics of a W-4 tax form and what it means for you during the tax season.
A W-4 Form: What is it?
The W-4 tax form lets your employer know how much of your paycheck to withhold to pay taxes to the IRS. If you withhold too much, you are likely to receive a refund. If you pay too little, you will likely owe taxes to the IRS and potentially pay a penalty on your tax return.
Generally speaking, you don’t want a large refund. A refund from the IRS means that you overpaid on taxes during the tax year and they owe you money with interest. Interest was 5%, compounded daily, until June 30, 2020. It lowered to 3%, compounded daily, on July 1, 2020. While you do receive interest, the money the IRS withheld could have been used on other things in your life such as bills, groceries, or that one My Chemical Romance concert that sold out way too quickly.
The refund is money you could’ve had from the very beginning. And it’s not that the IRS is “stealing” from you. Whatever you write down in your W-4 is what they take from you. It’s imperative that you pay close attention to what you tell them to receive the best outcome.
The refund is money you could’ve had from the very beginning. And it’s not that the IRS is “stealing” from you. Whatever you write down in your W-4 is what they take from you. It’s imperative that you pay close attention to what you tell them to receive the best outcome.
How to Fill Out Your Tax Withholding
In 2020 there were a lot of tax law changes that forced the IRS to revamp the W-4. To make up for these changes, the IRS created a new form to promote accuracy and transparency to taxpayers. The change was also meant to make it easier for taxpayers to understand how much was being taken out at the end of each pay period. On one hand, you have greater control over how much your check is withholding. On the other, you actually have to know what your deductions are equal to. It’s become a confusing process. Thankfully the IRS provides a Tax Withholding Estimator on their website. It takes you on a step-by-step process to calculate the most accurate withholdings.
Before you use the withholding estimator, make sure you have the following:
- Employee pay stubs
- Previous year’s tax returns
- Expected wages for the year
- Bonuses paid
- Total federal income tax
- Amount of income tax withheld from your latest paycheck
After you’ve filled step 2 on the sheet, you’ll need to claim dependents for step 3. Thanks to the Child Tax Credit, you’ll receive up to $2,000 per child depending on their age(s). For non-child dependents, you may qualify for $500 in tax credit. Step 4 on the worksheet allows you to make manual adjustments based on other forms of income such as retirement funds, interest, etc. At this point, you may also choose to itemize your deductions as opposed to using the standard deduction.
A W-4 may be filled out and adjusted in between pay periods. If you don’t like what you see on your paycheck, you may change your withholding amount for the next one.
A W-4 may be filled out and adjusted in between pay periods. If you don’t like what you see on your paycheck, you may change your withholding amount for the next one.
Preparing Your Withholdings
Since you’re able to adjust your withholdings throughout the year, it’s advisable to speak with a tax professional who can help you maximize your tax return. We can guide you through the withholdings sheets to achieve your financial goals. You may want to increase your withholdings to receive a larger refund. You may want to decrease your withholdings so your paycheck is larger at the end of the pay period. You may prefer to have no refund or owe nothing at all at the time of your tax return. Whatever it may be, America’s Choice Tax Relief provides tax preparation services that will assist you in adjusting your withholdings sheets. We simplify any tax process to put you on the right financial footing.