What Is a W-4 and How Do I Fill Mine Out?

A surprise such as a promotion or birthday celebration can be exciting, but surprises are generally less welcome when it comes to taxes.

If filing your tax return this year came with an unwelcome bill or a larger-than-expected refund, you may be glad to know that the Internal Revenue Service offers a way to fine-tune your tax withholding: Form W-4.

With this form, also known as an Employee’s Withholding Certificate, you can adjust how much federal income tax gets withheld from each paycheck to align with your expectations come tax day (April 15, 2024, for income earned in 2023.)

What is a W-4?

Form W-4 tells your employer how much tax to withhold from your paycheck. Employees need to fill one out whenever they start a new job. Yet this form isn’t one to add to the “set it and forget it” stack, says Michael J. Faust, president of wealth management at Bailard.

“This is a dynamic form,” Faust says. “If something in your life changed this year, your W-4 is your chance to get out in front of it so you’re not surprised come tax time next year.”

For instance, if you owed more taxes or got a smaller refund than expected, you can use your W-4 to increase the amount of money that gets withheld from your paycheck. But if you overpaid and got a larger refund than expected—which some view as a bad financial move—you can instead use the form to decrease your withholding and increase your take-home pay.

Faust says it can help to think of your W-4 as part of your financial plan. Just as a good retirement plan helps balance your income and taxes over the long term, your W-4 can help do the same each year.

How Form W-4 has changed

If you haven’t checked in on your W-4 in a few years, you’ll want to take a gander, says Pete Isberg, an executive with payroll provider ADP. That’s because Form W-4 was overhauled in 2020 based on changes passed in the Tax Cuts and Jobs Act a few years earlier.

Before 2020, your tax withholdings were calculated using personal exemptions, a dollar amount you could deduct from your total income for yourself, as well as for your spouse and any dependents, if applicable. Using an IRS-provided worksheet, you would determine the number of exemptions to claim—indicated by a number ranging from 0 to 3. The higher the number, the less tax was withheld from your pay.

Today’s W-4 no longer uses personal exemptions to account for dependents and changes how you factor in additional jobs or income from nonjob sources.

How to fill out a W-4 step-by-step

Step 1: Provide your personal information

At the top of the W-4 form, you enter your personal information and filing status.

If the name you enter in this section differs from the name on your Social Security card, it’s worth taking the extra step of checking in with the Social Security Administration. With a free online account, you can review your earnings record to ensure you’re receiving credit for wages that may have been earned under a different name.

The next step depends on your filing status and job situation

• Single filers or married filing separately. If you have only one job, no kids and take the standard deduction, complete Step 1 and sign the form. You’re done. Otherwise, continue to Step 2.
• Joint filers. If both spouses work or you hold multiple jobs, proceed to Step 2. If only one spouse works, proceed to Step 3. 

Step 2: Multiple jobs and working spouse information

Step 2 can be deceptive, as it looks like there is only one box to check. However, if you’re filing jointly or a single filer with multiple jobs you’ll need to do some behind-the-scenes calculations to ensure an accurate withholding rate.

Luckily, the IRS provides tools to help. If you have multiple jobs, you’ll use Step 2(b)—Multiple Jobs Worksheet, which is found on page 3 of Form W-4.

It’s important to note that “multiple jobs” means that you (or you and a spouse) simultaneously work more than one job. If you change jobs during the year but none of those jobs overlap, “multiple jobs” doesn’t apply to you.

If you’re joint filers and each spouse has one job and similar earnings

If you and your spouse each have one job and similar annual incomes, you can opt to check box c in Step 2. In IRS parlance, “similar” means that the income from the lowest-paying job is more than 50% that of the highest-paying. The IRS indicates checking box c will result in a more accurate withholding if the lowest household income is more than half the highest salary.

If you’re a single filer with two jobs

OR

If you’re joint filers with one job each but dissimilar earnings

If you have two jobs, use the chart on page 4 of Form W-4 to locate your annual taxable income from the columns for the higher- and lower-paying jobs. For instance, say you’re a single filer with two jobs with taxable annual incomes of $82,000 and $21,000 on your previous year’s W-2s. Using the page 4 chart that corresponds with your filing status, you would enter $5,040 on line 1 of the worksheet.

Then, you enter the number of pay periods for your highest-paying job on line 3 of the Multiple Jobs Worksheet. Finally, you’ll divide the dollar amount on line 1 by the number of pay periods on line 3 and enter this figure on line 4. You’ll use this number when you get to Step 4(c) on page 1 of the W-4 of the highest-paying job.

So, if the single filer in the example above was paid twice monthly, or 24 times a year, they would divide $5,040 by 24 and enter $210.

If you and/or your spouse have three jobs total

You won’t fill out line 1 of the Multiple Jobs Worksheet if you have three jobs. Instead, you’ll begin with line 2a.

For example, suppose you’re a married couple filing jointly with three total jobs with annual taxable salaries of $82,000, $45,000 and $21,000. On line 2a, you’ll find the intersection of the highest two salaries using the “Higher Paying Job” and “Lower Paying Job” columns and enter the figure ($6,090) on line 2a.

Next, you’ll add the two highest salaries together. In this case, the total would be $127,000.

Going back to the page 4 chart, you’ll now use $127,000 as the highest-paying job and the salary of $21,000 as the lowest-paying job. You’ll write the figure in those intersecting columns ($6,270) on line 2b. You’ll then add the figures from lines 2(a) and 2(b) and enter the dollar amount on line 2(c).

Next, you’ll complete line 3 using the number of pay periods for the highest-paying job. And finally, you’ll divide the amount on line 2(c) by the number of pay periods in line 3 and write the figure on line 4. You’ll use this figure in Step 4(c) on the W-4 of the highest-paying job.

Note: If multiple jobs have annual taxable salaries above $120,000 or there are more than three jobs, you can use the online IRS Tax Withholding Estimator for an accurate figure or consult a tax professional. This tool can also be useful if you start a new job midyear.

To get the most accurate estimate using the estimator, you and your spouse will need these documents on hand:

• Recent pay stubs for all jobs
• Information on other income, like income from other jobs, investments and self-employment
• Your most recent joint tax return

You’ll use the figure from the withholding estimator in Step 4(c) on page 1.

Step 3: Calculate dependents and other credits

When you claim a tax credit, the amount of the credit gets subtracted from the income tax you owe.

If your adjusted gross income is $200,000 or less ($400,000 for joint filers) and you have eligible dependents, you’ll calculate your child tax credit and credit for other dependents here. Claiming these credits will decrease your withholding and increase your take-home pay.

Calculations for children under age 17 go on the first line, and other dependent calculations go on the second line. The IRS definition of dependent is fairly broad, and there is an online tool to help determine whether you’re eligible to claim someone as a dependent on your taxes.

You’ll add up the figures on the first two lines and write the total on line 3. If you know you will be eligible for other credits, such as the adoption credit or earned income credit, you can include those credit amounts here as well.

Step 4: Calculate additional withholdings

Step 4 is where you can insert the additional amount you’d like withheld to prevent surprises when you next file your taxes.

Other income. If you anticipate income from sources that don’t typically have taxes withheld, you can add an estimate of that income to line 4(a). This typically includes stock dividends or withdrawals from retirement accounts, but can include any income that will be reported on a Form 1099.

Deductions. A tax deduction reduces your taxable income. Since the Tax Cuts and Jobs Act went into effect, most taxpayers have taken the standard deduction. However, about 10% of people benefit from itemizing. If you plan on itemizing, you can use the Deductions Worksheet on page 3 of Form W-4 to find the right deduction to enter on line 4(b). Some examples of common itemized deductions are significant charitable contributions, mortgage interest and medical expenses that exceed 7.5% of your adjusted gross income.

On this worksheet, you can also add in estimates for expenses such as student loan interest, certain IRA contributions, health savings account contributions and educator expenses that can be deducted from income even if you don’t itemize. To see a list of potential deductions to include, see Part II Adjustments to Income on Schedule 1 (Form 1040).

Extra withholding. Faust of Bailard says one of the most common reasons some people opt to have extra withheld via line 4(c) is to build up a tax refund.

While some say refunds give the government an interest-free loan and should be avoided, other taxpayers use refunds as a financial tool. For instance, Faust says that some people get inspired by lump-sum refunds and use the annual cash influx to fuel other financial goals.

A poll from Ameriprise Financial found that, of those expecting refunds, 38% planned on using their refund for a specific financial goal. Of that 38%, 50% indicate they’ll use their refund to add to retirement savings, 41% will use it to pay off debt and 29% will invest the money.

Faust also mentions that some taxpayers like to build up a cushion with the IRS. If you owe more than planned, the cash cushion can lessen the blow come tax time. Conversely, if you owe less than planned, a refund can go right back into the bank. (However, if you are confident in your tax calculations, you can also use a W-4 to to boost your take-home pay.)

Step 5: Make it official

Your last step is to sign and date your form, then return it to your employer. Your employer will fill out the Employer Only section.

How often should I update my W-4?

If you’re a single filer comfortable with your tax bill or refund each year, your W-4 might be fine at your current withholding rate. But there are plenty of life events that could necessitate a change to your W-4, says Ashley Stahl, a career expert with financial services company SoFi.

“You can update this form throughout the year as your work or money situation changes, be it through getting married, having a child, losing your job or taking on a second job,” Stahl says.

However, Isberg with ADP suggests making W-4 reviews an annual practice—not just around life events. “It should really be part of your annual tax preparation process, meaning first, you file your taxes for the year prior, and second, you adjust your withholding for the next year,” he says. So after you file your Form 1040 tax return, your W-4 form updates should be next.

He also adds that W-4 adjustments should be made as early in the year as possible. By doing so, you can spread out increased withholdings over more pay periods to lessen the impact on your monthly finances.