Save Money on Taxes: The W-4 Withholding Form Explained | Quest Education

Updated: Jan 14, 2019

You want to save money on taxes, right? Well, filling out the IRS W-4 Withholding form correctly and in your favor is a super simple way to do just that.

Here, we will go in depth to explain everything you need to know. From reviewing the W-4 Withholding form definition to explaining every step in filling out the W-4 Withholding form, we’ll cover it all so you can finally understand how to ensure your W-4 allowances and W-4 exemptions work for you so you can save money on taxes.

W-4 Form Definition

The IRS Form W-4, Employee’s Withholding Allowance Certificate, is the form on which an employee claims withholding allowances (which will be explained later). This form has multiple parts, including:

The Personal Allowances Worksheet

Two additional worksheets (may or may not be needed)

Two tables (may or may not be used)

Employee’s Withholding Allowance Certificate.

There are three times when an employee may need or want to fill out the W-4 form.

When they begin a new job

If their family status changes (marriage or divorce, birth of a child, etc.)

To change the results of their annual income tax return

Once the employee has filled out the W-4 form, the employer has certain responsibilities to the IRS:

The employer records the form in the payroll processing system so that the correct amount of federal income tax is withheld.

The employer sends the money it withholds from the employee’s paycheck to the IRS. This money counts toward the employee’s annual income tax bill that is calculated on the tax return in April.

The employer keeps Form W-4 on file for four years after the date the tax becomes due or is paid, whichever is later.

W-4 Withholding Steps Explained

It’s important that the W-4 Withholding form is filled out correctly and ideally, since the answers determine (a) how much tax your employer will withhold from your paycheck, and (b) how much of your annual income tax will be due, or be refunded, in April. If too little is withheld, you may face an unexpected tax bill or penalty. If too much is withheld, you may not be bringing home as much money as you can on your paychecks.

It may be helpful to use the IRS’ withholding calculator to determine that an ideal amount of tax is being withheld from your paycheck.

Section 1: Provide your name and address.

Box 2: Provide your social security number.

Box 3: Check the box that corresponds to your marital status. Use the Two-Earners/Multiple Jobs Worksheet on page 4 to determine whether you should check the “Married, but withhold at a higher Single rate” box. If you are married but legally separated, or if your spouse is a nonresident alien, check the “Single” box.

Box 4: If your name doesn’t reflect the name on your social security card, follow the instructions listed.

Box 5: Use the Personal Allowances Worksheet on page 3 to help you fill out this box. *See below for W-4 allowances explained.

Box 6: If the number of allowances you’re claiming will result in your employer withholding too little tax, you will get a tax bill and possibly even underpayment penalties and interest charges.

This can happen if you received significant income reported on Form 1099, which is used for:



Self-employment or independent contractor income

Pension benefits from a previous job, but you’re now working at a new job

Box 7: Write “Exempt” if you had no tax liability for the previous year and if you expect to have no tax liability for the current year. *See below for W-4 exemptions explained.

Sign and date your form

Boxes 8, 9, and 10: These are to be filled out by your employer.

*W-4 Allowances Explained

Each allowance you claim reduces the amount of taxes withheld on your paycheck. Here’s a general overview of when to claim a certain number of allowances and what it will mean for you:

Claiming 0 Allowances:

Claim 0 if you are listed as a dependent on someone else’s tax return. An example is if you’re a college student and your parents claim you on their taxes.

The maximum amount of taxes are withheld from each paycheck.

Most likely, you’ll get a tax refund.

Claiming 1 Allowance:

Claim 1 if you are single and only have one job.

Most likely, you’ll get a tax refund.

Claiming 2 Allowances:

If you are single and have one job, you can also claim 2 allowances if you want to get closer to breaking even on your tax liability.

Claim 2 allowances if you are single but have more than one job and are not splitting your allowances between the two W-4 forms for each employer.

Claim 2 allowances if you’re married (one for you and one for your spouse), whether or not you’re filing separate returns or joint returns, as long as your spouse does not claim you on their own form.

You may or may not get a tax bill or tax refund.

Claiming 3+ Allowances:

Claim 3 allowances if you’re married and have a child.

Add one claim for each additional child.

You may or may not get a tax bill or tax refund.

If you plan to itemize or claim adjustment to income, you may want to reduce your withholding. Use the Deductions, Adjustments, and Additional Income Worksheet on page 3 to figure out if you should itemize.

*W-4 Exemptions Explained

You are most likely to be legally exempt if:

You are single and made less than $15,000 in the last year.

You are married, are filing jointly with your spouse, and you both made less than $30,000 in the last year.

Learn More About How to Save Money on Taxes

Make the most use of your money by trying to pay the right amount of tax throughout the year. If you underpay, you may have a hefty tax bill in April. If you overpay, that money you loaned the government could have gone toward your own personal savings account instead.

It’s surprising how a little education can go a long way to getting a bigger return come tax season. Learn how you can use tax credits to save money on taxes!