Updated: Aug 4, 2020
The W series…. Sounds pretty modern and trendy, doesn’t it? It could be the new Tesla or Lexus model. Maybe it’s a new starfighter in the upcoming Star Wars movie. But actually, the W Series are IRS tax forms. So this might be the biggest let down you have to face all day or even week! However, the W series forms are some of the most important forms you will ever receive.
The W Series’ most popular forms are the W-2, W-4, and W-9. The W-2 statement is used to report wages, a breakdown of tax withholding, and other deductions for employees. The W-9 is used to request and confirm social security numbers. The W-4 is not the most popular but is very important nevertheless, similar to how many fans feel about Star Wars episode 1. Below are more details on the W-4 form and why it may be a good time to update it.
The W-4 form instructs employers on how much tax (percentage) to withhold from an employee’s paycheck. The withholding amount depends on how the W-4 is filled out and how many “allowances” are claimed. These allowances are determined, among other things, by the taxpayer’s marital status, income, number of exemptions, and dependents. The fewer allowances selected, the more taxes will be withheld from an employee’s paycheck. Conversely, the more allowances claimed, the less will be withheld. Generally, a single individual should claim fewer allowances than a married couple with multiple children.
When you complete the W-4, there are instructions based on your specific life situation on how many, if any, allowances to claim. A common misconception is that you must claim the amount of allowances the W-4 forms projects for you based on their calculation method. That is not true; a taxpayer can always claim more or fewer allowances than the recommended amount. So, if you habitually have a tax bill due in April, you can decrease your allowance and withhold more per paycheck. Or if there usually is a large refund due in April, you can claim fewer allowances and increase your paychecks by withholding less.
Taxpayers can file a new W-4 at any time to update or change their withholdings. Since 2018 was the first year the new tax law has been in effect, many individuals now have a better idea of their taxes under the new law. If you received a larger refund or tax bill in April, it may be time to update your W-4. Also, if you get married, have a child, receive a big raise or take a pay cut, or begin freelancing on the side, adjusting your W-4 may be a prudent.
If you are an independent contractor and wondering why you have never heard of a W-4 or completed one, it is because you do not need to. It is only for W-2 employees (the W-2 is probably the Luke Skywalker of the W-series, just being the hero).
If you would like to update and change your W-4 ask your employer for a new form. Completing the form will only take a minute or two.
For assistance in completing or analysing your W-4 withholding, reach out to me, your accountant, or use one of the many W-4 calculators online. May the W-4th be with you……
Had to do it.
Evan Werckenthien, CFP©
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Source: Experian, Federal Reserve