IRS Form W-4 is used to report to an employer the number of allowances a taxpayer claims on his or her tax individual tax return. As a general rule, each employer should have all new employees fill out and submit a W-4 Form upon hiring.
Why is the W-4 so important? The number of allowances claimed helps determine the amount to be withheld from each paycheck for federal income tax. Generally speaking, the higher the number of allowances, the lower the amount of tax withheld. The employer pays the amount that’s withdrawn from your paychecks directly to the IRS, so that in effect you build credit to be applied against income taxes that you owe for the year.
With each new job, you should submit a new W-4 to your new employer. Also, as your life circumstances change (for instance, due to marriage or the birth of a child), reevaluate your financial situation, and if necessary, submit a new W-4 to increase or decrease the amount of taxes withheld. This should leave you less stressed when it comes to filing your yearly tax return.
If you declare a low number of allowances and have more money withheld from your wages during the year, you might find yourself with a tax refund come tax season. Why is that? Essentially it’s this: you’ve simply overpaid the IRS throughout the year and are gaining back the funds that you’ve over-paid. However, if your W-4 is not up to date, and you’re having too little taken out from each paycheck, you’ll most likely owe taxes at the end of the year because you’ve underpaid the IRS.
Should you have questions, concerns, or need assistance in filing a new W-4, contact Law Offices of Christy Lee, P.C., immediately, and we’ll be more than happy to help you sort through the paperwork!