What is meant by W-4?

What is Form W-4?
Form W-4, the Employee’s Withholding Allowance Certificate for federal withholding, is used to decide the personal income tax withholding status for employees to make certain that the suitable sum of Federal taxes are withheld from their earnings.

It represents your total tax deductions divided by the personal exemption rate. The withholding allowance is related to, but not the same as, the number of dependents you can declare on your tax return.

How to determine the appropriate amount of withholding to be withheld?
The Residents for Tax Purposes can calculate your withholding by making the use of “Withholding Calculator”

Nonresidents for Tax Purposes: They can only claim a Single Marital Status and a maximum of one Allowance. Exceptions include citizens of the following countries: Canada, India, Mexico and South Korea.

How to file W-4 form:
Using the W-4 form, you can easily know the right amount of federal income tax to have withheld from your check.

Important tips:
Since your circumstances might change from year to year, you should evaluate your withholding allowances each year. In 2010, each allowance you claim reduces your taxable income by $3,650. If you claim more allowances than you have a rational basis for, the IRS can penalize you. So, be careful!

If you received a huge refund, you should consider reducing the number of allowances you claim. This will reduce the amount of tax which is withheld. If you paid the IRS a large sum when you filed your return, you should raise the number of allowances you claim.

If you do not file Form W-4, your employer must hold back tax from your wages at the highest rate - as though you're single with no allowances.

After claiming the allowances for yourself and your dependents, you should add extra allowances if any one of these is applicable:

· You're single and have only 1 job.
· You're married, have only 1 job, but your spouse doesn't work.
· Your wages from a second job or your spouse's wages are $1,000 or less.
· You have at least $1,500 of child- or dependent-care expenses and will claim a tax credit for these costs.
· You'll file your return as a head of household.
· You'll claim child credits – which are worth $1,000 for each eligible child. The number of allowances you claim depends upon the number of eligible children and your income.

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June 09 2011 09:08 am | W4 tax Form

One Response to “What is meant by W-4?”

  1. ubieranki Says:

    Good job, thanks for writing this.

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