Form W-4 Employee’s Withholding Allowance Certificate  2009

Form W-4 is a tax form used by the United States Internal Revenue Service. The form is used by employers to determine the correct amount of tax withholding to deduct from employees’ wages. Ideally, this amount will exactly equal the annual tax due on the 1040 series related to employment compensation, though in reality, many times it is off by a substantial amount.

When filling out a Form W-4, an employee calculates the number of Form W-4 allowances he or she will claim, based on his or her expected tax filing situation for the year. For each Form W-4 allowance taken, the amount of money withheld as Federal income tax is reduced. This, in turn, reduces any tax refund for which he or she may be eligible (i.e. the funds were never withheld in the first place), or conversely raises one’s liability for taxes due. No interest is paid on over-withholding. Penalties are imposed for under-withholding beyond a certain threshold. The IRS Withholding Calculator can also calculate withholding allowances more exactly.

One point of confusion is the number of Form W-4 withholding allowances often does not equal the number of Form 1040 exemptions. Although the Form 1040 exemptions and Form W-4 allowances are otherwise similar, one additional W-4 allowance is allowed for having only one employer. Should a person have two employers, he or she may either forfeit this allowance with both employers, or retain it with the one providing the highest annual compensation, and forfeit two allowances (“one employer” and “self”) with the second employer. Using the latter method could result in lower overall withholding, and a closer approximation of the actual taxes due.

The W-4 form does not include any provision for the part-year employment method. This must be requested in writing to an employer in addition to the W-4. The part-year method may be used when continuous employment (including unpaid days off) during the current calendar year is less than 245 days (i.e. commencing on or after May 1). Certain restrictions apply, such as prior employment in the same calendar year. See IRS Publication 505 Chapter 1 Page 8. The cumulative wage method is used in a retroactive manner if one’s Form 1040 exemptions change during the calendar year upon submission of a revised W-4. Employers are not required to use either method if it is too complex for their system of accounting. However, they must override an employee’s previous W-4 with information on a newly submitted W-4 for all tax withholding in the future.

If too little tax is being withheld for any reason, line 6 on the W-4 form allows the employee to withhold any stated amount per pay period. (This is simple enough that all employers must oblige.) Alternatively, or in addition, the employee can send quarterly estimated tax payments directly to the IRS (form 1040-ES). Should the employee have additional income (e.g. investments) not subject to withholding (or insufficiently withheld), the latter may be mandatory whenever payroll withholding falls short. Those claiming exemption from all withholding on form W-4 line 7 will likely hear from the IRS seeking further documentation. Nevertheless, someone earning annually (from all taxable sources) less than his or her total Standard Deduction and Personal Exemption(s) does not have to have any tax withheld (subject to someone else claiming him or her as a dependent).

Form W-4 Employee’s Withholding Allowance Certificate  2009