When you start a new job, your first day is typically a whirlwind of introductions, training, and paperwork. It can be overwhelming and, if you’re a recent graduate starting out in the working world, you might not have a clue where to start.
One of the most important forms you’ll be asked to complete is the W-4. Although it might be tempting to rush to get it completed, it’s important to take your time. It affects your paycheck and how much you’ll owe at tax time.
Here’s everything you need to know to complete your W-4 form accurately.
What is a W-4 form?
If you’re just out of school, your paycheck can be a big shock. The amount you actually take home is less than the salary you earn thanks to taxes. That’s where the W-4 form comes into play.
When you start a new job, the IRS requires your employer to collect certain information from you. The human resources department or your boss will ask you to complete the W-4 form.
The form tells your employer how much to withhold from your paycheck for federal income taxes. The information you enter impacts your paycheck total each pay period and how much you’ll owe in April at tax time.
If you underestimate your withholding, you’ll owe money when you file your taxes. Overestimate, and you can get a larger tax refund.
Although getting a big refund can sound great, it’s a good idea to try to calculate your withholding as precisely as possible so that you have more money each month to put toward paying off students loans or investing.
How to complete a W-4 in just 3 steps
Although the W-4 form can look intimidating, it can be completed correctly in just three steps.
1. Choose exempt or not exempt
One of the first things the W-4 form prompts you to answer is whether you’re exempt, which means your employer won’t withhold federal income taxes from your paycheck.
For your taxes and the W-4 form, you’re exempt only if the following are both true:
- In 2017, you had a right to a refund of all federal income taxes withheld because you had no tax liability.
- In 2018, you expect a full refund of all federal income taxes withheld because you have no tax liability.
If you’re working full time, you likely won’t qualify for tax-exempt status. As of 2018, you must make less than $12,000 a year to qualify if you’re single.
Make sure you only claim exempt status if you meet all the criteria. If you claim it when you’re not really exempt, you’ll owe a significant amount when you file your taxes, along with penalties.
2. Fill out the worksheets
To fill out the W-4, you need to complete one or more of the following worksheets:
- Personal allowances worksheet: Everyone completes the personal allowances worksheet. Your “allowances” are your deductions for your taxes. The more allowances you claim on the worksheet, the less that is taken out of your paycheck. The form asks you if you’re single or married, if you’ll claim a dependent on your taxes, if you’ll file as head of household, and whether you have dependent child care expenses. Although the form is straightforward, you can use the IRS’ withholding calculator to help you.
- Deductions and adjustments worksheet: You only need to complete this worksheet if you’ll itemize your deductions, such as if you plan on deducting mortgage interest, charitable contributions, or medical expenses.
- Two-earners/multiple jobs worksheet: If you have more than one job or are married and your spouse also works, you’ll need to complete the two-earners/multiple jobs worksheet. This sheet helps you calculate the extra amount you need to withhold from your paycheck with the additional income.
3. Complete your W-4
Once you have finished filling out the worksheets, you can complete the actual W-4 form.
The first few lines ask for basic information, such as your name, address, and Social Security number. On line No. 5, you enter the number you calculated from the personal allowances worksheet.
If you also completed the deductions and adjustments worksheet, you’ll instead enter that number you calculated from that sheet on the W-4.
If you filled out the two-earners/multiple jobs worksheet, you need to enter the final number from that worksheet on line No. 6 of the W-4.
For those who worry about withholding too little from their paycheck, you can also opt to withhold additional money from your pay. Just enter the extra amount you want to withhold on line No. 6.
If you’re tax-exempt, you have to write in “exempt” on line No. 7.
Finally, you need to verify that the information is correct and sign and date the form. Once it’s done, you can submit it to your employer.
Revisiting your W-4
Completing your W-4 is an important step when starting a new job. But it’s wise to review and update your W-4 periodically.
If you get married or divorced, pick up a side hustle, or have a child, make sure you complete a new W-4 form and submit it to your employer.