Figuring out your Form W-4
(Employee's Witholding Allowance Certificate)
When you start a new job, you must fill out federal Form W-4.
Why is the W-4 important?
It tells your employer how much federal tax to take out of your wages or "withhold." Your employer will use this same information to withhold your state income tax. Personal income tax is collected on a "pay-as-you-go" system. This means you must pay tax on the income you earn when you receive the income.
What kind of information is on the Form W-4?
Form W-4 includes three types of information:
- Whether you withhold at the single rate or at a married rate.
- How many withholding "allowances" you claim (each allowance reduces the amount withheld).
- Whether you want an additional amount withheld.
What are withholding allowances and how do they work?
Withholding allowances tell your employer how much money to take out of your wages to pay for taxes. The more withholding allowances you have, the less taxes your employer will take out of your wages. But beware! If you do not have enough witholding, you may have tax to pay when you file your return.
How do I figure out how many withholding allowances I can take?
Use the Personal Allowances worksheet on page 1 of Form W-4 to figure your withholding allowances. The worksheet is there to help you figure the correct number of withholding allowances you can claim. For many students, this will be one allowance. The worksheet is for your own records. You do not have to turn it in to your employer. You can have more tax withheld by claiming fewer withholding allowances.
Can I claim "exempt?"
"Exempt" means you do not have to have any tax withheld from your wages. Students are not automatically exempt from withholding.
Do you have a part-time job but not earn enough to be required to file a tax return? If so, you can ask your employer not to withhold income tax for 2005 by claiming "exempt" from withholding if both of the following are true:
- For tax year 2004, you have a right to a refund of all income tax withheld because you had no tax liability; and
- For tax year 2005, you expect a refund of all income tax withheld because you expect to have no tax liability.
Dependents. You cannot claim "exempt" for 2005 if:
- Someone will be able to claim you as a dependent; and
- Your 2004 earned income will be over $800; and
- Your 2004 income will include more than $250 of unearned income.