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. 

Marital Status

In box 3 of Form W-4, there are three boxes for filing status: Single, Married, and Married but withhold at higher Single rate.

You should check Single if you are single, divorced or separated under a court decree of separate maintenance.  You should also check single if you are married but your spouse is not a citizen or resident of the United States.  You would not normally be able to file a joint return.  But if one of you is a U.S. citizen or resident, you can choose to treat the nonresident spouse as a resident for tax purposes.  In this case, you would be able to file a joint return and could check the Married box on Form W-4.

You should check the Married box if you are married and neither you or your spouse is a nonresident alien.  You are considered married for the year if you are married on the last day of the year.  You are also considered married for the whole year if your spouse died during the year.  You should also check the Married box if you expect to be able to file as a qualifying widow(er) with dependent child.  You may be able to claim this status for 2 years after your spouse died.  By December 1 of the last year you can file as a qualifying widow(er) you should file a new W-4, showing your status as Single for the following year.

You should check the Married but withhold at a higher Single rate if you are married but you find that not enough income tax is being withheld to cover your tax liability.  This may happen, for instance, when both spouses work.  In this case, you may want to fill out the Two-Earner/Two-Job Worksheet, which is explained below.

Withholding Allowances

The more allowances you claim on line 5 of Form W-4, the less income tax will be withheld from your pay.  In order to have the maximum amount of tax withheld, based on your filing status, you would enter “0” on line 5.  This does not mean that you will not be claiming any exemptions on your annual tax return, or that you are waiving your right to claim exemptions.  It is simply a way of having more tax withheld from your pay.

The number of allowances you can, or should claim, depends on several factors, including how many exemptions you expect you will be able to claim on your annual tax return; whether you have more than one job; what adjustments, deductions, and credits you expect to claim for the year; and whether you will file as head of household.  And if you are married and your spouse works, you will need to decide on how many withholding allowances each of you will claim.  This may depend on whether you plan to file jointly or separately, and if you file separately, who will claim exemptions for any qualifying dependents.

Form W-4 Worksheets

There are worksheets attached to Form W-4.  These include a Personal Allowances Worksheet, a Deductions and Adjustments Worksheet, and a Two-Earner/Two-Job Worksheet.  The worksheets are to help you determine the number of withholding allowances to claim, and are for your personal records.  You do not necessarily need to claim the number of withholding allowances that result from completing these worksheets.  And the figures you use to complete these worksheets do not obligate you with regard to the number of exemptions, deductions, or credits you can actually claim when you file your annual income tax return.

The worksheets are intended as a guide, and will generally result in the appropriate amount of tax being withheld from your pay if you complete the worksheets correctly and you can foresee and estimate the items that will affect your tax situation for the year in a reasonably accurate manner.  You do not have to complete all three worksheets.  You should generally complete the Personal Allowances Worksheet, and should complete the other two worksheets if they apply in your case. 

If You Have More Than One Job

You should complete only one set of worksheets for Form W-4 purposes, even if you have more than one job.  You cannot claim the same allowances with more than one employer at the same time.  But you can then divide your total number of withholding allowances between the W-4 Forms you have to file with each employer in any way you want.  You could claim all your withholding allowances on one Form W-4 and none on the other(s), or divide them up any way you choose.

If You Are Married

If you are married, you and your spouse should complete one set of worksheets for both of you if you plan to file jointly.  One spouse cannot claim a withholding allowance claimed by the other spouse.  But you can divide up your total withholding allowances between you in any way you choose.  If you plan to file separately, you should each complete your own set of worksheets.

Personal Allowances Worksheet

By following the indications for each line on this worksheet, you should come up with a total number of withholding allowances that will be appropriate for your tax status.  By claiming this number of allowances, your tax withholding for the year should closely match your actual tax liability.  This is the purpose of the worksheet.  As indicated in the notes at the bottom of this worksheet, if you expect to be able to itemize deductions or expect to have adjustments that will reduce your taxable income, you may be able to reduce your tax withholding, and should complete the Deductions and Adjustments Worksheet.  And, if you have more than one job, or you are married and both you and your spouse work, you may need to have more tax withheld.  You should complete the Two-Earner/Two-Job Worksheet in that case.

You should claim one allowance for yourself on line A unless someone else can claim you as a dependent.  Add an additional withholding allowance on line B if one of the conditions indicated there applies in your case.  This is not the same as, and should not be confused with the exemption you claim for yourself on line A, or the exemption you claim for your spouse on line C.  Rather, it is an additional allowance to be taken into account in determining the amount of tax to be withheld from your pay.  In this sense, the allowances for purposes of completing Form W-4 and having tax withheld from your pay, are not the same as the exemptions you claim when you file your annual income tax return.

On line C you can claim an allowance for your spouse’s exemption.  You would generally claim this allowance if you are planning to file jointly and your spouse, if he or she is working, is not claiming an allowance.   You can both claim your own allowances even though you intend to file jointly.  If you are married and intend to file separately, both spouses should claim allowances for their own exemptions.

Line D is for the number of dependents you expect to claim when you file your tax return.  You should keep in mind that there is a phase-out of the deduction for personal exemptions if your adjusted gross income (AGI) is above a certain amount, based on your filing status.  If your expected AGI is over the maximum amount of the phase-out bracket for your filing status, you should enter “0” on line D.  If your expected AGI is within the phase-out bracket, there is a worksheet in Internal Revenue Service (IRS) Publication 505, Tax Withholding and Estimated Tax, to prorate the number of allowances you can claim for your dependent exemptions.

You can claim an additional allowance on line E if you expect to qualify to file as head of household.  To qualify you must be unmarried and must have paid more than half the cost of keeping up a home that was the main home all year for your parent who you can claim as a dependent, or a home that you lived in for more than half the year with your qualifying child or other dependent.

On line F you should claim an allowance if you expect to have expenses of at least $1,500 during the year to have someone care for your child under age 13, or to care for your spouse or other dependent who is not capable of caring for him or herself, so that you can work or look for work.  These expenses can be taken as a credit on your tax return, directly reducing your tax liability, so they are taken into account for withholding purposes.  You can claim an allowance here, or you can take the credit into account on the Deductions and Adjustments Worksheet.

On line G you can claim extra allowances for the child tax credit, which also directly reduces your tax liability.  The credit, and therefore the number of allowances for withholding tax purposes, depends on the level of your income and the number of eligible children.  The income levels are subject to change, and are included in the worksheet itself, in line G.  If the child is your son, daughter, stepchild, grandchild, adopted child or foster child who you can claim as a dependent, is under age 17, and is a U.S. citizen or resident, you can take the child tax credit.  As in the case of the child or dependent care expenses credit on line F, you can claim an allowance here on line G for the child tax credit, or you can take the credit into account in the Deductions and Adjustments Worksheet.

Deductions and Adjustments Worksheet

You should complete the Deductions and Adjustments Worksheet if you want to decrease the amount of your tax withholding (increase your allowances) because you are planning to itemize deductions instead of taking the standard deduction, you plan to have adjustments that will decrease your taxable income, or you plan to be able to claim tax credits that will directly reduce your income taxes.  In order to be able to complete this worksheet, you will need to be able to reasonably estimate the amount of your itemized deductions, adjustments to income, and credits.

On line 1 of this worksheet you would enter your total estimated itemized deductions for the year.  These would be the deductions you would take on Schedule A of Form 1040.  Some of the types of itemized deductions you may be able to claim are included in the description for this line (medical expenses in excess of 7.5% of your AGI, state and local taxes, mortgage interest, charitable contributions).

Miscellaneous itemized deductions include some expenses that are deductible to the extent they exceed 2% of your AGI.   These include unreimbursed employee business expenses and certain expenses of managing your investments.  Other types of miscellaneous expenses are fully deductible.  These include impairment-related work expenses of persons with disabilities, casualty and theft losses from income-producing property, unrecovered investment in an annuity contract in which payments cease because of the annuitant’s death, federal estate tax paid on income received in respect of a decedent, repayments of more than $3,000 under claims of rights when you had previously included those amounts in taxable income, and gambling losses up to the amount of any gambling winnings you report.

Your total itemized deductions may also be subject to a limitation if your expected adjusted gross income is over a certain amount.  This dollar-amount limit generally changes each year and is indicated in the description for line 1 on the worksheet.  Therefore, in order to accurately estimate the amount of your itemized deductions, you will also need to be able to estimate your AGI, in order to determine the amount of medical expenses that exceed 7.5% of your AGI, the miscellaneous itemized deductions that exceed 2% of your AGI, and to determine whether your total itemized deductions are subject to limitation based on your AGI.

To determine your AGI, you will need to estimate your adjustments to income, which are reported on line 5 of the worksheet.  So you may need to fill in line 5 first, in order to be able to calculate the amount to report on line 1.  Adjustments to income are shown on page 1 of Form 1040 or 1040A.  These adjustments include contributions to an IRA or self-employed pension plan, contributions to a health savings account (HSA) or medical savings account (MSA), tuition and fees deduction, student loan deduction, one-half of self-employment tax, self-employed health insurance deduction, educator expenses, penalty for early withdrawal of savings, alimony payments, moving expenses, expenses of performing artists, net operating loss carryovers, travel costs if you are in the Reserves, jury duty pay given to your employer, and the deduction for clean-fuel vehicles.

Line 5 of this worksheet includes tax credits.  The child and dependent care expense credit and child tax credit are included in the Personal Allowances Worksheet, but they can be included here instead.  In addition, you can include estimates for any of the following credits for which you think you will qualify: credit for the elderly or disabled, mortgage interest credit, foreign tax credit, qualified electric vehicle credit, credit for prior year minimum tax, earned income credit, adoption credit, general business credit, retirement savings contribution credit, Hope credit, and the lifetime learning credit.  Once you have estimated the amounts of these credits, they will need to be converted to withholding allowances.  You can do this by completing Worksheet 7, “Converting Credits to Withholding Allowances”, in IRS Publication 919, “How Do I Adjust My Tax Withholding?”.  This worksheet basically takes your credit and multiplies it by your effective tax rate based on your total income.

On line 6 of the worksheet, you should estimate your income from sources other than your salary or wages, such as interest, dividends, capital gains, and rental income.  The remaining lines of the worksheet should be filled in based on the instructions and calculations indicated.  The result will be the revised number of withholding allowances you can claim on your Form W-4.

Two-Earner/Two-Job Worksheet

As its name indicates, this worksheet can help you have sufficient tax withheld from your pay if you have more than one job, or if you are married and both spouses work. You will first need to fill out the Personal Allowances Worksheet, since the total allowances from that worksheet go on line 1 on this worksheet.  And if you adjusted your withholding allowances by completing the Deductions and Adjustments Worksheet, the total from that worksheet would go here instead.

The number that goes on line 2 of this worksheet is taken from Table 1.  Table 1 is separated into two different sections, based on filing status: married filing jointly and all others.  Within the appropriate section, you would first find the range corresponding to your highest paying job, then find the number of allowances corresponding to the income from either your lowest paying job, if you have more than one job, or the income from your spouse’s job, if it is lower than yours.  If this number, which represents the reduction in the number of your withholding allowances, is less than the number on line 1, you subtract line 2 from line 1 and this is the reduced number of withholding allowances you would claim on your W-4.

If line 2 is more than line 1, you would have to complete the rest of this worksheet.  You would use Table 2 to find the number corresponding to the highest paying job, and follow the instructions to complete the rest of the worksheet.  The resulting amount is the additional dollar amount that needs to be withheld each paycheck in order to avoid under-withholding of tax.  This amount is reported on line 6 of your W-4.