Withholding: Filling Out Your W-4 Form for a New Job

• After being hired, you will be required to complete a W-4 form.
• Each time your employer pays you, they take out (withhold) a certain amount of money from your paycheck.
• To determine how much to withhold, your employer considers your salary and the information you provide on W-4.

Are you starting a new job? Congratulations!

I'm sure by now you have completed your fair share of paperwork, from job application to offer letter. However, after being hired, and on day one of a new job, you will be required to complete a W-4 form, which we will cover in this article.

But first, let's talk about some terms that you will often see when reviewing your paystubs such as tax withholding, gross pay, and net pay.

What is tax withholding?

Each time your employer pays you, they take out (withhold) a certain amount of money from your paycheck. The money taken out directly goes to the government for income taxes that you must pay during the year. 

The U.S. pay as you go tax system allows you to pay taxes throughout the year instead of one lump sum payment during the tax season. If too much tax is withheld, you will receive a tax refund. However, if not enough tax has been held back, then you will owe money to the IRS.

To determine how much to withhold, your employer considers your salary and the information you provide on W-4.

What is the difference between gross pay and net pay?

When it comes to taxes, gross pay and net pay are two important terms to understand.

Gross pay is the amount of money you receive before your employer takes out any taxes and deductions.

Net pay is the amount you take home after all taxes and deductions.

The W-4 Form: Employee's Withholding Certificate 

The W-4 is an IRS form you complete to let your employer know how much money to withhold from your paycheck for federal income taxes. It can help you not have a large balance due at tax time. The Personal Allowance Worksheet determines the withholding amount for you.

What does this mean to you?

Each allowance or exemption you claim reduces the amount your employer will withhold from your paycheck. And the Personal Allowance Worksheet helps you figure out how many allowances to claim.

The goal is to make sure that the proper amount of federal income tax per paycheck is withheld so that you do not owe the IRS anything at the end of the tax year. The number of allowances you claim determines this.

For example, you can add an allowance if you're married with a non-working spouse or single with one job. You can also add another allowance if you file your tax return as the Head of Household.

What should you claim or withhold on your W-4?

You can claim between 0-3 allowances on the 2019 W-4 form, depending on eligibility. As a rule of thumb, the more allowances you claim, the less tax your employer will withhold from your paycheck, and the fewer the allowances, the more the withholding amount - which could result in a refund.

What Happens if I Claim 0 on my W-4?

It's a safer route to claim nothing on your W4 form. It means your employer will withhold a maximum amount of fed income tax from every paycheck you receive. Your take-home pay will be less. However, on the flip side, claiming 0 could mean a generous refund at the end of the tax season.

Your Responsibility

If you do not have your taxes withheld or remitted personally, you're still liable for taxes and may not qualify for Medicare, Social Security, or unemployment benefits.

The new W-4 form is much easier to fill compared to the old one. It does much of the work for you. It's mainly a matter of answering questions the form provides. More accurately, your employer will calculate the correct amount to withhold from your pay.