The IRS W-4 Form tells an employer how much to withhold from each paycheck to pay your taxes each Tax Day.
You can adjust this amount, which can increase or reduce the amount of a refund you receive the following year.
IRS W-4 Forms tell employers how much in taxes to withhold from employees’ paychecks based on the number of allowances they claim. Officially, a Form W-4 is an Employee’s Withholding Allowance Certificate. New employees must fill out a W-4 Form, for federal and state, before beginning employment. Knowing when and why to update your Form W-4 lets you take control of your individual tax liability.
Taxes and Why Updating Matters
Allowances directly affect whether an employee owes taxes, gets a tax refund, or comes out roughly even. The more allowances taken on Form W-4, the less federal tax is withheld from each paycheck. Be careful though, because if an employee claims too many allowances, that refund check either goes out the window and can result in a tax bill owed on April 15.
An accurate W-4 Form is vital. There are three things that can result in a penalty:
- Paying less than 90 percent of yearly tax liability.
- Owing more than $1000.
- Paying less than 100 percent of the previous year’s total tax bill.
Your claimed allowances are mostly up to personal preference. Too few and your paychecks will be smaller than they need to be, while giving Uncle Sam an interest-free loan. That’s not bad if you want a large lump-sum refund. But if you would prefer to keep more money in your pocket throughout the year, the number of allowances should get you as close as possible to zero taxes, zero refund.
Life Situations to Update W-4 Form
Multiple Jobs
Picking up a second job usually increases your income and therefore your tax liability. It also means updating your W-4 Form to keep your taxes payable on your terms — as long as you follow the tax laws, that is. This is also applicable if your spouse gets a new or second job that causes your joint income to increase.
If you are freelancing or starting a home business, you may want to adjust the W-4 Form for your main job to maximize your tax position. If your second job is with an employer, you’ll fill out a new W-4 for that income, but the added earnings can affect how many allowances to claim for your main gig, too. A higher income might mean a higher tax bracket.
Change in Filing Status and Dependents
A prime time to adjust your Form W-4 is when newlyweds return from their honeymoon. Taxes may not be top of mind, but as long as you were married before December 31, you will be eligible to file jointly and likely qualify for other deductions and a lower tax rate. Likewise, if you went through a divorce within the year, you may now be filing as single status which would reverse some of the tax benefits you previously received.
Another major tax event that should be accounted for in your Form W-4 is the birth or adoption of a child. Especially if you qualify for Child or Child Care Tax credits, you will want to adjust your withholding allowances accordingly.
How Often Can a W-4 Form Be Updated?
Per IRS recommendations, you should update your W-4 Form every year. If your life situation changes in a way that impacts taxes, update your W-4 as often as necessary. Your W-4 should reflect your current life and financial situations — regardless of the time of year.
Let’s say you get married in February, start moonlighting in April, and have a baby in November. When should you have updated your W-4? Ideally, in February, in April, and in November. The first two changes might bump up your tax liability since a combined or higher income can push you into a higher tax bracket. The last at least puts a little more money back in your pocket.
Employer Responsibilities
Your employer must put your updated W-4 into effect at the beginning of the first payroll period that ends on or after the 30th day from the date you turned it in. Employers can, however, apply it earlier at their own discretion.
State W-4 Form Requirements
In 2020, the IRS released an overhaul of the traditional Form W-4, which eliminated withholding allowances. This was problematic for some states since several still relied on withholding allowances for their state income tax structure. It led to many states releasing their own W-4 Forms so employees can withhold state income taxes more accurately.
| Alabama | Form A-4, Employee’s Withholding Tax Exemption Certificate |
| Arizona | Form A-4, Employee’s Arizona Withholding Election |
| Arkansas | Form AR4EC, State of Arkansas Employee’s Withholding Exemption Certificate |
| California | Form DE 4, Employee’s Withholding Allowance Certificate |
| Colorado | Federal Form W-4, Employee’s Withholding Certificate |
| Connecticut | Form CT-W4, Employee’s Withholding Certificate |
| District of Columbia (DC) | Form D-4, DC Withholding Allowance Certificate |
| Delaware | Form W-4, Employee’s Withholding Certificate |
| Georgia | Form G-4, State of Georgia Employee’s Withholding Allowance Certificate |
| Hawaii | Form HW-4, Employee’s Withholding Allowance and Status Certificate |
| Idaho | Form ID W-4, Employee’s Withholding Allowance Certificate |
| Illinois | Form IL-W-4, Employee’s and other Payee’s Illinois Withholding Allowance Certificate and Instructions |
| Indiana | Form WH-4, Employee’s Withholding Exemption and County Status Certificate |
| Iowa | Form IA W-4, Employee Withholding Allowance Certificate |
| Kansas | Form K-4, Kansas Employee’s Withholding Allowance Certificate |
| Kentucky | Form K-4, Kentucky Withholding Certificate |
| Louisiana | Form L-4, Employee’s Withholding Exemption Certificate |
| Maine | Form W-4ME, Maine Employee’s Withholding Allowance Certificate |
| Maryland | Form MW507, Employee’s Maryland Withholding Exemption Certificate |
| Massachusetts | Form M-4, Massachusetts Employee’s Withholding Exemption Certificate |
| Michigan | Form MI-W4, Employee’s Michigan Withholding Exemption Certificate |
| Minnesota | Form W-4MN, Minnesota Employee Withholding Allowance/Exemption Certificate |
| Mississippi | Form 89-350-19-3, Mississippi Employee’s Withholding Exemption Certificate |
| Missouri | Form MO W-4, Employee’s Withholding Certificate |
| Montana | Form MW-4, Montana Employee’s Withholding Allowance and Exemption Certificate |
| Nebraska | Form W-4N, Employee’s Nebraska Withholding Allowance Certificate |
| New Jersey | Form NJ-W4, Employee’s Withholding Allowance Certificate |
| New Mexico | Federal Form W-4, Employee’s Withholding Certificate |
| New York | Form IT-2104, Employee’s Withholding Allowance Certificate |
| North Carolina | Form NC-4, Employee’s Withholding Allowance Certificate |
| North Dakota | Federal Form W-4, Employee’s Withholding Certificate |
| Ohio | Form IT-4, Employee’s Withholding Exemption Certificate |
| Oklahoma | Form OK-W-4, Employee’s Withholding Allowance Certificate |
| Oregon | Form OR-W-4, Oregon Employee’s Withholding Statement and Exemption Certificate |
| Pennsylvania | Federal Form W-4, Employee’s Withholding Certificate |
| Rhode Island | RI W-4, State of Rhode Island and Providence Plantations Employee’s Withholding Allowance Certificate |
| South Carolina | SC W-4, South Carolina Employee’s Withholding Allowance Certificate |
| Utah | Federal Form W-4, Employee’s Withholding Certificate |
| Vermont | Form W-4VT, Employee’s Withholding Allowance Certificate |
| Virginia | Form VA-4, Employee’s Virginia Income Tax Withholding Exemption Certificate |
| West Virginia | Form WV/IT-104, West Virginia Employee’s Withholding Exemption Certificate |
| Wisconsin | Form WT-4, Employee’s Wisconsin Withholding Exemption Certificate/New Hire Reporting |
Withholding Calculators
Can I really do this myself? If you take the time to look up all the information required, the online calculators can do a fairly accurate job.
However, taxpayers with complicated tax returns should consult a professional. The tax law is complicated, and no two tax situations are identical. A thorough review of your prior tax returns coupled with a complete tax projection for the current year is the best way to avoid all surprises on April 15th.
Abacus Payroll’s specialists and Alloy Silverstein’s CPAs can discuss with you your optimal Form W-4 and state tax withholdings that best fit your individual situation. Contact us today at (856)667-6225 or fill out our quick Contact Us Form.