Finances and Taxes

Your Biggest W-4 Questions, Answered

Leslie Harding Former Customer Experience Writer, Gusto 
Your 4 Biggest W-4 Questions, Answered | What is Form W-4? - Gusto

Get step by step guidance on how to

fill out the 2021 W4 form here.

If Goldilocks were a government tax form, she’d be a W-4.

Bear with us for a second—the Employee’s Withholding Certificate, nicknamed the W-4, tells companies how much money they need to subtract from their employees’ paychecks and then send off to the IRS. And in true Goldilocks fashion, it’s extremely important to get that number just right.

In this article, we’ll show you how to master the W-4 so you can make more thoughtful decisions about your personal finances.

1. What is the W-4, anyway?

Basically, the document itself is a hybrid form and worksheet. Bust out the pencils here— that worksheet section helps people determine their tax withholding.

Every time you run payroll for your team, you’ll be sending a slice of their paycheck—the withholding tax—directly to the federal government. This is an incremental payment that is credited to your employee’s income tax bill for the year. Done correctly, the W-4 helps shrink the amount of taxes people have to shell out in the spring.

2. When do my employees have to fill out the W-4?

Everyone should have a clean slate when they start a new chapter in their lives. That’s why whenever someone begins a job, they’ll have to submit a brand new W-4. Along with the I-9, the W-4 is one of the first pieces of paper your new employees will have to fill out.

If for any reason an employee does not submit a W-4, then you (the employer) must withhold taxes as if they are single, with no adjustments. 

3. Are employees required to update their W-4?

Employees can update their W-4 for any reason and at any time of year. If an employee provides an updated W-4, per the IRS: “You must put it into effect no later than the start of the first payroll period ending on or after the 30th day from the date you received the revised Form W-4.” 

While many people choose to reevaluate their money situation when they tie the knot, have a baby, or buy a house—they don’t have to have a qualifying event to update their W-4. There’s no federal requirement that mandates a yearly update, or an update upon certain life events. But we think it’s great to have a solid understanding of your W-4 and update it accurately and regularly. Besides, with the W-4, it’s a cakewalk.

4. How do I help my employees fill out their W-4s?

Time for some tough love for business owners and managers: even though you want to help your team members, the W-4 is something they have to tackle entirely on their own. The details of the form are extremely personal, and it requires an in-depth understanding of someone’s life in order to be completed correctly. So while you can’t help your employee to fill out the W-4, you can provide information about the form and emotional support. (IRS forms can be daunting, but you’ve got this!)

First, let them know that it isn’t scary. In fact, they’re secretly W-4 pros because they already know most of the information they’ll be asked about. Put them at ease by prepping them with this list of questions:

What you’ll have to answer:

  • What’s your name and address?
  • What’s your Social Security number?
  • Are you married?
  • Are you claiming any qualifying individuals as dependents (e.g. a child, parent, or dependent family member)?Is anyone else claiming you as a dependent on their tax form (e.g. your parent)?
  • How much do you make?
  • Are you filing as head of household? (If you answer “yes” to all of the questions below, this may be your filing status.)
  1. You paid over half of the cost to manage your home
  2. As of December 31st, you were not married
  3. You currently support a qualifying individual (child, parent, or family member)  
  • Do you work multiple jobs or does your spouse work?
  • Is there other income that you are receiving elsewhere that won’t have withholding?
  • Are there other deductions (e.g. medical or itemized deductions) you know you will receive beyond the standard deduction that you want to consider in your withholding?
  • Is there any additional tax that you want withheld each pay period?

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We can help to walk you through this

The above questions are pretty easy, right? Great! And now, here’s the news you’ve been waiting for: there’s some fine print. (You had a hunch, right?) What do we mean by fine print? Well, it’s important to know what qualifiers and exceptions may apply to your situation. If you’re claiming a child as your dependent, for instance, it may be important to know that a qualifying dependent child would be under 19 years of age and younger than you (no, that’s not a typo) or a student who is still under the age of 24 at the end of the calendar year…among a few other qualifiers.

 The purpose of the form is really to provide employees with the most accurate withholding. We have an entire post that will walk you (and/or your employees) through the 2020 W-4, step-by-step

To help your team arrive at the perfect number, check out the IRS Withholding Estimator.

5. Okay, my team just wrapped up their W-4s. Now what?

Time to celebrate! After your team knocks their W-4s out of the park, make sure they autograph them, date them, and hand them your way. All you have to do is find a secure spot to stash them.

If you’re using a payroll service that handles W-4s for you, you’ll probably already have an electronic copy on hand. Regardless, it’s still a good idea to have a physical version on file too. The IRS requires businesses to hold on to their forms for a minimum of four years, which is fairly easy to remember when it’s called a W-4.

6. I received a lock-in letter from the IRS. What do I do?

If the IRS determines that an employee is withholding significantly less than they expect, you may receive a “lock-in letter.” Here’s the scoop on that:

  1. The lock-in-letter will provide you with the filing status, adjustments, and maximum credit or deductions allowed for that employee. You must follow the IRS instructions.
  2. The IRS will provide you with a notice to give to your employee.
  3. The IRS will also send a letter to the employee, in which they’ll explain the withholding changes that they are requiring the employer (you) to make. The letter will also contain instructions on how the employee can dispute the revised withholding. The employee must make their dispute to the IRS directly (not to the employer).

Our tour of the W-4 has reached its final stop. By now, we hope you’re armed with a deeper understanding of the form.With a little education, your employees will feel more empowered about their financial decisions, and you both will discover how remarkable this simple sheet of paper can be.

This post was originally published on March 22, 2017.

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Updated: January 5, 2021

Leslie Harding
Leslie Harding Leslie Harding is a former customer experience writer who helped small businesses get a better handle on payroll, taxes, and everything in between.

Comments

  • Shawna

    For 20 years I’ve been paying myself weekly and I pay estimated taxes. I don’t have a W-4. I’m a business owner. I have a K-1 and a 1040 and various other forms. I’m not sure how to estimate my “federal withholding allowance” or the “California withholding allowance”. Do I have to have an accountant helping with filling out information for Gusto?

    Reply
  • bre

    Do i need to fill this out if its my first job, i really need answers, because im really confused

    Reply
  • Colette Osweiler-Fritz

    If an employee moves then does the W4 have to be redone?

    Reply
    • Caleb Newquist

      In general, no. It’s a good idea for employees to complete a new W-4 every January or February. It’s fine for them to update their address at that time.

      Reply

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