How to fill out your W-4 to optimize your refund

Young man using a laptop to to fill out a W-4 at home. Image:

In a Nutshell

Your W-4 helps determine how much money an employer withholds from your paycheck for federal income taxes. The information on it directly affects how much tax you may owe, or get refunded, when you file your taxes. Here's how to fill out a W-4.

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The amount of taxes you pay into the system throughout the year helps determine how much federal income tax you’ll owe at tax time or if you’ll get a refund.

If your employer withholds tax from your paycheck, they base the amount withheld on how much you earn and the information you provided on your W-4. In order to manage your return, or the amount of tax you might owe, it’s important to know how to fill out a W-4.


W-4 basics

Typically, people complete a Form W-4, or Employee’s Withholding Allowance Certificate, when they start a new job as an employee. However, the IRS recommends you complete a new one every year, along with when you change jobs or experience changes in your personal or financial situation.

In addition to basic information your employer and the IRS need for tax purposes, such as your name, address and Social Security number, Form W-4 also includes information on the number of personal allowances you want to take.

The number of allowances you claim affects how much tax your employer will withhold from your paychecks. The more allowances you claim, the less tax your employer will withhold. Decreasing the number of allowances mean they’ll withhold more tax.

The allowances you claim on a W-4 also align with tax credits you might take on your tax return, says Cathy Derus, a certified public accountant and owner of online accounting and financial planning firm Brightwater Accounting.

Accidentally claiming too many allowances could lead to a large bill when you file a return and penalties on unpaid taxes. (Knowingly falsifying the information can lead to a $500 or $1,000 penalty or imprisonment for up to a year, or both.) Claiming too few could result in a large refund, but that may not be the best choice if you need the money during the year.

Tax reform and your W-4

The Tax Cuts and Jobs Act, which became law on Dec. 22, 2017, changed tax rates for all seven income tax brackets, increased the standard deduction and eliminated personal exemptions. As a result, the IRS updated the withholding tables that employers use to calculate workers’ tax withholding.

The agency says that the updated tables are designed to work with current W-4s. However, it also recommends you review your withholdings to be sure they’re correct. To help workers ensure their withholdings are accurate, the IRS plans to issue an updated withholding calculator and Form W-4.

How to fill out a W-4: line-by-line

The Form W-4 is short — just two pages with instructions and worksheets — but it can also be confusing. You have seven boxes, called lines, to complete, and your employer has three.

To avoid unnecessary work, first determine if you’re exempt from withholdings (line seven). The W-4 has basic instructions, and IRS Publication 505 has a more thorough exemption chart you can follow on page 11. You may be exempt from withholdings only if both of these conditions apply:

  • You had a right to have all the federal income tax your employer withheld the previous year refunded to you.
  • You expect all the federal income tax withheld during the tax year to be refunded to you because you have no tax liability.

If you’re exempt, you only need to complete lines one through four and line seven, and then sign and submit the form. If you’re not exempt, and many people aren’t, you may want to start with the worksheets that come with the Form W-4.

Personal Allowances Worksheet

The number of allowances you claim can have a big impact on your withholdings. Go through parts A through H to help determine the proper number of allowances and what you may enter on line five.

Deductions and Adjustments Worksheet

Use this worksheet if you plan to itemize your deductions, such as medical expenses, or claim certain tax credits or adjustments. If you think you’ll use this form, have a copy of Publication 505 handy, as you may need to reference it.

Two-earners/Multiple Jobs Worksheet

Figure out your proper withholdings if you have more than one job, or if you and a spouse both work and you’re filing a joint tax return. The worksheet will help determine the total number of allowances you (or you and your spouse) should cumulatively take, not how many to claim on each W-4. The Form W-4 recommends claiming all your cumulative allowances on the W-4 for the highest-paying job, and claiming zero allowances on the other W-4.

 

Once you’ve completed the worksheets, here’s how to fill out a W-4, line by line.

  • Line 1: Enter your name and address.
  • Line 2: Enter your Social Security number.
  • Line 3: Indicate whether you’re married, single, or married and want your taxes withheld as if you’re single. (If you choose the last option, more taxes will be taken out of each paycheck.)
  • Line 4: Check this box if your last name doesn’t match your Social Security card. (Call 1-800-772-1213 to reach the Social Security Administration and apply for a replacement Social Security card.)
  • Line 5: Enter the number of allowances you want to claim, based on either the Personal Allowances Worksheet or the Deductions and Adjustments Worksheet.
  • Line 6: You can also choose to withhold a specific amount of money from each paycheck. If you used the Two-earners/Multiple Jobs Worksheet, you’ll enter the result here. Derus says this line can be particularly important if you or your spouse also work as a contractor, freelancer or self-employed individual, and don’t plan on making estimated tax payments. Taxes aren’t generally withheld from those types of pay, so you may want to withhold extra money on a W-4 to avoid a larger tax bill later.
  • Line 7: Determine and indicate if you’re exempt from withholdings for the current year.

After filling out the applicable seven lines, sign and date the form, and submit it to your employer.


Bottom line

Knowing how to fill out a W-4 can help you better manage your taxes throughout the year. The information on your W-4 will help determine how much you might owe, if you’ll get a refund and how big your refund could be. In light of the changes in the tax code, it may be wise to revisit your withholdings and update your W-4.

If you want to change your withholdings, you can update your W-4 at any time. To make changes on your W-4, contact your employer, who may have an online portal for W-4 changes, or submit a new paper form. You can also update your W-4 while using Credit Karma Tax™ to file your federal and state income tax returns. The service is always free.