The purpose of Form W-4 is to have the right amount of federal income tax withheld from your pay. The information you provide on this form will help to match your withholding with your actual tax liability for the year. There are worksheets to help you determine the number of allowances you should claim.
Whenever you start a new job, one of the forms you will be required to fill out is Form W-4, Employee’s Withholding Allowance Certificate. The information you provide on this form, together with the amount you earn, will determine how much your employer withholds from your pay for federal income tax. You can use the worksheets attached to Form W-4 to help you determine the number of withholding allowances to claim. You should complete the worksheets as accurately as possible, based on the best information you have available at the time, and based on your best estimates of what your tax situation for the year will be. If your situation subsequently changes, you can submit a new W-4.
Form W-4 contains basically three types of information that are used to determine how much to withhold, based on your earnings:
Your filing status – whether to withhold tax at the single rate, which is higher, or at the married rate, which is lower.
The number of withholding allowance you are claiming. These withholding allowances generally correspond to the number of dependents you are claiming. Each additional withholding allowance you claim means that less tax is withheld.
Any additional amount you want to have withheld. You may need to have an additional amount withheld because you have more than one job, or if you are married, because you have two earners. This amount can be calculated using one of the worksheets. You may also want to have an additional amount withheld if, in addition to your salary or wages, you have other income that is subject to tax, but for which tax is not being withheld.