June 15, 2023

By: IRS Tax Tips

(Issue Number: Tax Tip 2023-82))

Whether someone is entering the workforce for the first time or changing jobs, filling out new hire paperwork can feel overwhelming. One of the forms employees must complete is a W-4, Employee’s Withholding Certificate. This form tells employers how much money to withhold from the employee’s pay for federal income tax.

It’s important for employees to know the correct amount of tax to withhold so they don’t owe too much money when filing their tax returns or have too much money withheld from their paychecks.

Get tax withholding right.Federal income tax is a pay-as-you-go tax. Taxpayers pay the tax through their employers as they earn or receive income during the year. Employers take out – or withhold – income tax from employee paychecks and pay it to the IRS in the taxpayer’s name.

If an employee doesn’t have enough tax withheld, they may face an unexpected tax bill and a possible penalty when they file a tax return next year. If they overpay or have too much tax withheld during the year, the employee will likely get a tax refund when they file their tax return. Adjusting the tax withheld up front may mean a bigger paycheck throughout the year.

Form W-4, Employee’s Withholding CertificateNew employees must complete Form W-4 so that their employer can withhold the correct amount of federal income tax from their pay. Employees should read the instructions carefully. The employer will base the amount of withholding on the information the employee provides on their W-4 and how much the employee earns.

People can also submit a new W-4 when their personal or financial situation changes and they want to update their withholding.

Taxpayers can use the Tax Withholding EstimatorIf a taxpayer isn’t sure how much tax they should have withheld, they can use the Tax Withholding Estimator tool on IRS.gov to:

  • Estimate their federal income tax withholding.
  • See how their refund, take-home pay or tax due is affected by their withholding amount.

Not all workers are employeesWorkers are classified as either contractors or employees according to certain rules. Workers who are independent contractors need to pay their taxes directly to the IRS. Depending on how much they earn, they may need to pay estimated tax on a quarterly basis.

Keep tax forms in a safe place.Form W-2, Wage and Tax Statement, is a taxpayer’s record of the income they received throughout the year and the amount of money withheld