Your guide to Form W-4

The W-4 tells your employer how much federal income tax to withhold from each of your paychecks.

Derek Silva

Derek Silva

Published December 23, 2019

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KEY TAKEAWAYS

  • Your W-4 tells your employer how much income tax to remove from your paychecks so you don’t owe a tax bill or get a giant tax refund

  • Update your W-4 whenever your financial or personal situation changes

  • You can update your W-4 whenever you want and as many times as you want

  • The 2020 W-4 has five steps, but not everyone needs to complete all the steps

Employers remove a certain amount of money from your paychecks and send it to the Internal Revenue Service (IRS) in order to pay your federal income taxes throughout the year. The amount they remove is called your tax withholding. IRS Form W-4 tells your employer how much money they should withhold from each of your paychecks in order to accurately pay your federal income taxes.

The IRS requires every employee to fill out a W-4, and your employer probably required you to complete it your first day on the job. It’s important to get your W-4 right to avoid paying too much or little in tax. If you don’t withhold enough tax, you will owe a tax bill when you file your tax return. Withholding too much will get a big refund when you file your return, but you could have had bigger paychecks during the year because you didn’t have to withhold as much as you did.

You can update the information on your W-4 as often as you need to, and you should generally fill out a new W-4 after changes to your financial situation, like getting married, having a child, buying a house, or just after a raise. Many companies now allow you to update your W-4 online. Even if your finances don’t change, it’s good to check your withholding regularly to ensure everything is correct.

The W-4 was redesigned for 2020 in order to incorporate changes from the 2017 tax reform, but filling it out is still easy for many taxpayers.

In this article:

What is a W-4 & who needs one?

The U.S. tax system requires everyone to pay income tax throughout the year, by having employers withhold a certain amount from each of their paychecks. IRS Form W-4 form is a federal tax form that tells your employer how much money to withhold from your paychecks, so that you pay the proper amount of annual tax.

You need to complete a W-4 for each employer you have who withholds taxes. Employers that give you a W-2 at the end of the year are withholding income tax. If you have multiple jobs that withhold tax, you will need to complete a W-4 for each job.

If you only get paid with a 1099 form, you shouldn’t need to complete a W-4. In general, you won’t need a W-4 if you’re self-employed, a freelancer, or an independent contractor.

Only give your W-4 to your employer. Do not send any W-4 forms to the IRS. Your employer doesn’t actually send your W-4 to the IRS; it’s mostly just for the company’s records.

Form W-4 vs W-2

Form W-4 tells your employer how much tax to withhold in upcoming paychecks, and a W-2 tells you how much tax your employer withheld for the past tax year. You complete a W-4 and give it to your employer, while a W-2 is a form that your employer sends you early in the year to help you file your tax return. A W-2 also lists the total income you earned, how much of your income was subject to tax, and how much tax your employer withheld.

Do I need a W-4 for state taxes?

If your state, country, city, or other local government collects income tax, your employer may require you to complete a state version of the W-4. Some states also call their form a W-4, but it’s distinct from the federal W-4. There are also states that just use the information on your federal W-4 instead of requiring a separate form.

When to update your W-4

Since your W-4 affects how much income tax you pay, you should check or update your W-4 any time you experience a big life event or when your financial situation changes. It’s also a good idea to check your W-4 at the beginning or end of each year.

Here are some possible reasons to update your W-4:

  • Marriage or divorce
  • The birth or adoption of a child
  • Your child no longer qualifies as a dependent
  • You get a second job or change jobs
  • You get a raise (you may no longer be withholding enough)
  • Your spouse gets a second job, a new job, or a raise (if you file a joint return)
  • You or your spouse is unemployed for any amount of time
  • You move or buy a house

You can update your W-4 at any time, and you can update it as many times as you want. Changes may take up to 30 days to take effect, though. Many employers and HR services allow you to change the W-4 digitally online, but your employer may require you to fill out a paper form.

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How to fill out a W-4 in 2020

The 2020 W-4 has five sections, labelled as steps. Each step asks you about different types of income or tax deductions, so that you can determine how much your employer should withhold for each item. Not everyone has to fill out every part of the W-4. Everyone has to fill out steps 1 and 5, but not everyone has to fill out 2 through 4.

To make the W-4 process easier, have last year’s tax return on hand (assuming your tax situation is similar to last year)

Step 1: Enter your personal information

Step 1 simply requires your name, address, Social Security number, and tax filing status. (Learn more about how to choose a filing status.)

Step 2: For joint filers & people with multiple jobs

You only need to complete step 2 if you have more than one job or if you’re married, filing jointly with a spouse who also works. Completing this step is potentially the most complicated, but it ensures you withhold enough tax to cover all of your income.

There are three possible ways to fill out step 2. They’re labelled as 2a, 2b, and 2c, but you only need to do one of them.

Step 2a: Use the IRS withholding estimator app to determine how much tax to withhold per pay period. (This is generally the easiest method.)

Step 2b: Instead of the app, you can fill out the Multiple Jobs Worksheet on page 3 of the W-4 instructions. This step requires you to look up your income in a table and then divide the table value by the number of your annual pay periods. (For example, a job that pays every other week would have 26 pay periods.) If you have multiple jobs with a salary above $120,000, or if you have income from more than three jobs, you will also need to reference the withholding tables in IRS publication 505.

Step 2c: If you have only two jobs (including if you have one and your spouse has one) and they both have similar salaries, you can check the box in step 2c without having to do any of the things in steps 2b and 2c. Make sure you check this box for each job’s W-4.

If you used step 2b or 2c, the result will go on line 4c, later in the form. Your result is the total amount to withhold per paycheck, and the IRS suggests writing this number on the W-4 of the highest paying job.

Step 3: Claim dependents

Complete step 3 only if you have dependents and if you’re either a single filer with an income of $200,000 or less, or if a joint filer with an income of $400,000 or less. In other words, this step applies to people who qualify for the child tax credit (CTC) or the credit for other dependents (ODC).

Step 4: Make other adjustments, if necessary

Step 4 has three parts that allow you to withhold any additional tax if necessary. If you completed step 2a or 2b, you will write your result on 4c. Most other tax filers don’t need to use step 4.

Step 4a allows you to withhold income tax for any other taxable income you have outside of your jobs, such as interest, dividends, and retirement income. If you expect to earn more than $1,000 of untaxed income, you may need this step (otherwise you may need to pay estimated taxes.)

Step 4b allows you to adjust your income tax withholding based on any deductions you plan to claim. This step mostly applies to people who itemize deductions instead of taking the standard deduction, but you may also want to use it if claim any of the deductions on Schedule 1, like the student loan interest deduction, and want to fine-tune your withholding to maximize the size of your paychecks. Use the worksheet called Deductions Worksheet on page 3 of the Form W-4 instructions.

Step 4c is where you enter any amount you want your employer to withhold from each of your paychecks. If you completed step 2a or 2b, write your result here.

Step 5: Sign

Sign and date the form before returning it to your employer. If your employer lets you complete your W-4 digitally, you will probably be able to use an electronic signature instead of having to print and sign. There is also a box in step 5 for your employer to sign.

How the 2020 W-4 is different from 2019

The 2020 W-4 form is different from previous years, because it now reflects the changes from the 2017 tax reform (The Tax Cuts and Jobs Act). In particular, it got rid of allowances. Previously, the amount withheld was determined by the number of allowances you took. If you wanted to make your withholding more precise, you would write in a dollar amount to withhold. The new W-4 form bases your tax withholding on your estimated earnings instead of using allowances.

Learn more: Who benefitted from the 2017 Trump tax cuts?

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About the author

Personal Finance Expert

Derek Silva

Personal Finance Expert

Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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