How to Fill Out a W-4 Properly and Avoid Owing the IRS
Updated: Oct 23
I've noticed in my time of being a tax professional, even before I became an EA, that one reason that people owe the IRS is because they don’t know how to account for the taxes that need to be paid for their income level. Simply put, they don’t know how to properly fill out their W-4 when they are an employee and/or they don’t know how to calculate and make estimated tax payments if they are self-employed. Instead of learning, they take a chance at it possibly being right and this is where they mess up.
You can’t afford to chance something when it comes to dealing with the IRS. You need to know what you’re doing or hire a professional that knows what they are doing and will clearly communicate with you the things they need from you to ensure you are on the right track with the IRS. Today we’re going to cover:
What is a W-4
Who is Exempt From Withholding
How to Fill Out a W-4 When You're Single
How to Fill Out a W-4 When You're Married
This post is for informational purposes only. Consult your tax professional or the IRS website about your specific tax situation.
What is a W-4
The W-4 is a tax form used by your employer to tell them how much of your income you would like withheld and paid to the IRS. If too little is withheld you generally will owe when you file your tax return, which can result in an underpayment penalty. On the flipside if you withhold too much you will generally get a refund. After the Tax Cuts and Jobs Act was passed the W-4 was designed to help taxpayers receive more of their money throughout the year so following the instructions on the form will result in getting as close as possible to breaking-even, not owing and not getting a refund.
It is important that you fill out a new W-4 each time you start a new job and each time there is a major life change. For example, if you get married your standard deduction will be doubled. If you have a child you will now be eligible for the child tax credit, and if you purchase a home you may now be eligible to itemize deductions on your return. Making note of all these types of changes on your W-4 is important to make sure that you do not have too much money withheld during the year. Unless of course you are a taxpayer that enjoys getting a big tax refund.
Who is exempt from withholding
Not all taxpayers are obligated to have taxes withheld from their wages. These taxpayers may be exempt from withholding on their W-4. Being exempt is not common but you are eligible if you meet the following criteria:
You had no federal income tax liability in the prior year and you don’t expect to have on this year
You had no federal tax liability in the prior year (2020) if your total tax on line 24 of your 1040 or 1040-SR is 0 OR
You were not required to file a return because your income was below the filing threshold for your filing status.
You agree to have no taxes withheld from your wages
If you meet these criteria, congratulations you may file exempt! Beware: this means that NO taxes will be withheld from your wages. You may write “Exempt” in the space below step 4(c). Complete Steps 1(a), 1(b), and 5. You’re all done 😊.
If you don't qualify to file exempt, keep reading...
W-4 Page 1
How to Fill Out a W-4 When You're Single
For the sake of time I won't be able to go through every possible scenario of a single person but if you would like for me to go into further detail in another post let me know in the comments!
In this example our taxpayer is single, one job, no itemized deductions, and no dependents.
First things first, you want to make sure that you enter your name exactly the way that appears on your social security card. Otherwise you could end up making tax payments and not getting credit for them.
Equally as important make sure that you check the box for the correct tax filing status, which in this case is single. This tells your employer to not tax the first $12,400 (this is the standard deduction for single tax filers and changes for inflation each year) that you make from this job and at what percentage to withhold Federal taxes. Not checking the correct box will result in you owing because your taxes will be withheld at the wrong rate.
W-4 Step1: Enter Personal Information
The final part of filling out the W-4 for a single person with one job and no dependents is to go to step 5, sign, date and turn in to your employer.
Note: Steps 2-4 are only to be done if they apply to you. So if you don't meet any of the qualifications for 2-4 just skip them. The W-4 is designed to make sure that the right amount of tax is withheld during the year, not to get you a large refund. If you would like to increase the amount of your refund you can choose to have additional money withheld from your income on line 4(c).
If you're single but have multiple jobs you can check out How to Fill Out a W-4 When You're Married. Everything past step one will apply to you too!
How to Fill Out a W-4 When You're Married
"You get better tax benefits when you get married!"
Anyone else heard that? Well it's true, the standard deduction is doubled, which makes sense but now you're also able to earn more money and possibly be taxed at a lower rate. However, a lot of married couples don't take advantage of this benefit because they don't realize they should update their W-4 after a major life event like marriage.
Let me explain...
Couples fill out a new W-4 but they don't do it correctly. Both spouses check the box in Step 1 as married. However they completely ignore step 2 and grossly underpay their taxes and end up with a tax bill.
For example: If we have a couple and each spouse makes $60,000 at their job that's a total of $120,000 but if they don't fill out Step 2 properly the first $49,600 of their income won't have any taxes withheld. They'll also only have 12% withheld even though combined they are in the 22% tax bracket.
Note: If this has happened to you and you need help getting back on the good side of the IRS contact our firm today. We specialize in helping taxpayers get back in good graces with the IRS. If you owe $10,000 or more you can book a free tax relief consultation at www.Bowenstaxsolutions.com
Step 2 ensures that both jobs are withholding the proper amount while still taking advantage of the married filing jointly benefits. There are 3 different ways to figure out the correct amount to be withheld for extra withholding in Step 4.
Step 2: Multiple Jobs or Spouse Works
The IRS withholding estimator - this is the most accurate way
Use the Multiple Jobs Worksheet on page 3 and enter the result in Step 4(c) for roughly accurate withholding
If there are only two jobs total, you may check the box in 2(c). Do the same on Form W-4 for the other job. This step only works if both jobs have similar pay.
There are instructions for the estimator on the IRS website that walk you through what information you need and how to enter them in the calculator. Using page 3 is a little trickier but it is the key to ensuring that married couples or single taxpayer's with multiple jobs don't owe if they can't use the IRS withholding estimator.
To do page 3 you have to also know how to use page 4 correctly. On page 4 find the job salary that is highest in the "Higher Paying Job" row and the job that is the lowest in the "Lower Paying Job" column.
Let's say we have a couple with one spouse making $60,000 and the other making $40,000 a year. We would find $60,000 in the row and the $40,000 in the column. Those two numbers intersect at $4,490. See if you can find it in the image below.
Page 4: Married Filing Jointly or Qualifying Widow(er)
After finding the number where these two household salaries intersect we will put that number on line 1 of Step 2.
Step 2(b) - Multiple Jobs Worksheet
We can go to line 3 next. Enter in the number of pay periods during the year for the spouse that earns the highest salary. So if the spouse earning $60,000 is paid twice a month we would put 26 on line 3.
Note: If it is not the beginning of the year you will put the amount of pay periods that are left for the year.
We'll divide line 1 by line 3 to get line 4. So in this example we will divide $4,490 by 26. The number to go on line 4 is $172.69. This is the amount of additional withholding this couple should have each pay period. Additional withholding only needs to be done on one spouse's W-4 and it is usually the one that is earning more money. This is the most simple way but I've also seen couples split the amount on line 4 between the two of them.
$172.69 will be put on Step 4 line 4(c) for additional withholding each pay period. The couple is now ready to sign their W-4s and turn them in to their employer. The spouse with the higher salary will have used the Step 2 worksheet and added additional withholding for each period while the spouse with the lower salary will skip steps 2-4 and go straight to Step 5 after filling out Step 1.
They would look like this respectively:
Completed W-4 Examples for Married Filing Jointly
91% of people I asked said they felt unsure when filling out a W-4. Were you confident about filling out a W-4 before reading this? How are you feeling now? Let me know in the comments!
If you owe the IRS a big part of being eligible to make a deal with them is being tax compliant. This means filing all past returns and keeping up with all current taxes. If you fail to have the proper amount of taxes withheld from your wages any deal that you do have with the IRS can be taken off of the table. So make sure you hold up your end of the bargain! If you're tired of fighting the IRS alone I invite you to book a free, no obligation tax relief consultation with my team and I at www.Bowenstaxsolutions.com.
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.