Form W-4: Frequently Asked Questions and Answers
To avoid making the same mistake made by millions of employees, click and learn.
W-4 forms are one of the most misunderstood tax forms. Also known as Employee’s Withholding Certificate, all US employees are required to complete it.
Basically, Form W-4 determines how much income tax your employer should take out from your paycheck.
All in all, Form W-4 requires three pieces of information. Pieces of information your employer will use to determine your Withholding Tax amount. They include:
- How many dependents/allowances/exemptions are you claiming?
- Are you married or single?
- Would you prefer your employer to withhold more from your paycheck than necessary?
As I said above, Form W-4 is one form every US employee must complete. Most employees regret not knowing more about Form W-4 when they began their careers.
For this reason, I’ve taken it upon myself to simplify Form W-4 in the best way possible and provide answers to the frequently asked questions.
What Is Form W-4?
Simply put, Form W-4 is a document issued by every employer to collect certain information from their new employees for tax estimation purposes.
How Can I Claim Exempt on my Form W-4 in 2022
First, what does the word ‘exempt’ mean on your Form W-4?
When you claim ‘exempt’ from your Form W-4, you simply indicate you will not pay federal income tax during the period in question. By the way, you will still be subject to FICA tax.
But then, if you wish to claim ‘exempt’ on your Form W-4, you must meet the following criteria:
1.) You must possess no Federal Income Tax Liability during the previous year.
2.) You must expect no federal income tax liability in the current year.
If you meet the above criteria, you are one step closer to being eligible to claim an ‘exempt’ on your W-4 form.
In the next step, complete your W-4 form with your name, Social Security Number (SSN), and address. Then, leave lines 5 and 6 blank and fill in “exempt” on line 4c in your W-4 form.
After which, you place your signature and date on the form and return it to your employer. Easy peasy, right?
Not really. There is still a lot more to it. And I will explain in a minute.
By claiming ‘exempt’ on the Form W-4 you submitted earlier to your employer, your employer will stop withholding federal tax. But there are situations where your case might take a new turn.
Suppose your tax situation changes OR you fail to meet the above criteria. You must fill out a new form W-4 within 10 days, which can be pretty stressful for a remote worker.
Do I still qualify for ‘Exempt’ On my W-4 Form If I have dependents?
Yes, you qualify. You are still eligible to claim ‘exempt.’
You can indicate any allowances or additional withholding on your W-4 form. And then, leave line 7 blank.
However, in this case, there is no need to enter ‘exempt’ on the blank line.
Also, while the information on a typical form W-4 never expires, an exemption from withholding does. Hence, employees claiming an exemption must submit a new Form W-4 annually.
For more information, click here.
How Can I Claim ‘Exempt’ As A Remote Worker On My W-4 Form?
Claiming ‘Exempt’ as a remote worker can be tricky.
Since Form W-4 requires you to file an updated copy annually, it may be challenging for a remote worker to complete the form and mail the hard copy to their employer.
However, you can use PoastalEASE, a United States Postal Service subsidiary. For more information, click here.
How to Estimate The Withholding Tax On My Form W-4 In 2022
I know an automated tool that can estimate your tax amount in no time. All you have to do is provide the specific details needed.
Click here to make use of this Withholding Tax Estimator.
Should I Claim 0 or 1 Allowances/Dependents on My Form W-4?
First of all, any decision you make has its own pros and cons. Therefore, choose the option that best suits your situation.
For instance, the Internal Revenue Service(IRS) will tax you the most when you claim “0” allowance on your Form W-4.
However, if you claim one or more allowances, the IRS will take less tax out of your paycheck.
Safe to say, the more allowances or dependents you claim, the lesser tax withheld from your paycheck.
The fewer allowances claimed, the more significant the amount withheld, sometimes resulting in excess withheld tax.
What’s The Difference Between Claiming ‘0’ and 1 Dependent on My Form W-4?
As I mentioned above, the difference between an employee claiming 0 dependent and another claiming 1 dependent on Form W-4 is simply a difference in the Withholding Tax amount. For someone claiming 0, your employer withholds more tax. While for someone claiming 1, your employer withholds less tax.
How Many Allowances or Dependents Should I Claim On My Form W-4?
Based on the 2019 form W-4 format, you are liable to lay claim to 0 to 3 allowances on your W-4 form.
Making the right choice can be tricky. Hence, it would be best if you were up-to-date with the pros and cons of any decision. Laying claim to more allowances might imply paying less tax than you should, probably resulting in a penalty and interest fee on the tax later.
While opting for fewer allowances might imply paying a lot more money than you should.
What Do One Mean by Claiming Zero Allowances on My W-4 Form?
When you claim zero dependents or allowances on your w-4, you are simply telling the IRS that no one else depends on your income. That is, you have no wife or husband, children, or relatives depending on you for funding.
As a result, your employer removes the maximum amount possible from your income.
The number of allowances you claim determines how much of your paycheck you want them to take.
How Many Allowances Should Single People Claim?
Here is another question people commonly ask. Here comes an answer anyway.
The best option is to file as a single person and claim zero dependents/allowances. There might be instances where you have relatives or siblings who depend on you for money. In this case, it might be advisable you choose 1 or 2 dependents.
However, if you still rely on your parent for income, you will not be eligible to claim ‘exempt’ on your W-4 form.
Filing as a single person and claiming zero allowances are the safest standard withholding. The worst-case scenario is that you will get a refund when you file your tax return, which might seem like a windfall at the time.
Additional Considerations When Completing Your W-4 Form
One of such consideration (and perhaps the most important one) is how to avoid paying a full-year employment tax if you join a company in the middle of the year.
There is a good chance you might start your job in the middle of the year rather than in the beginning.
Since your working days for the year will not exceed 245 days, request in writing that your employer use the part-year method to calculate your withholdings.
In truth, the standard withholding formula typically assumes full-year employment.
As a result, if you start your job within the year, your employer will likely withhold too much, which is unfair.
The End
Many people have been misled by their misunderstanding of Form W-4. And this has had a significant impact on their careers.
You must learn more about it to avoid making the same mistake as most careerists in the United States.
Also, if possible, seek financial advice from experienced financial personnel.
My best wishes are with you as always.
Love, Daniel.
