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How To Fill Out W4 Exempt

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 6 minute read

Your new company will provide you with a W-4 tax form when you begin working for them. Your employer will use this form to determine how much federal income tax must be withheld from your paycheck depending on your filing status, the number of dependents you declare, and the income and deductions you will report on your tax return.

The 2020 tax year will be the first year in which Sections B and C of Form W-4 are not relevant, therefore no exemptions or allowances may be claimed then. Historically, taxpayers have been able to deduct the cost of supporting themselves, their spouses (if married), and their dependents. But this choice is no longer available due to the Tax Cuts and Jobs Act of 2017 (TCJA). In 2017, each exception may reduce your taxable income by $4,050. (the last year exemptions were a part of Form 1040).

With the use of allowances, you may adjust the percentage of your salary that was set aside for federal income tax. Under the prior Form W-4 rules, you may claim as many exemptions for which you qualify as allowances. It’s also possible to increase the percentage of your income that is subject to taxation by claiming fewer allowances. The updated version should be simpler to follow.

How to Complete Form W-4

Five distinct actions make up the new Form W-2. Every worker is responsible for completing the first two steps. The subsequent steps are optional and should only be done if they pertain to you.

Step 1: Enter Your Personal Data

You won’t have any trouble with the first step. Your name, SSN, and mailing address are required. In addition, double check that the name on your W-4 and Social Security card are the same.

You must use the name that appears on your Social Security card even if you have just been married, divorced, or legally changed your name. After notifying the SSA of your name change, you will be able to complete a new W-4. Your tax filing status is also required. There are three selections available on the form:

  1. If you are single or married, you must file individually.
  2. If you are married and filing jointly, or if you are an eligible widow (er)
  3. Head of the family

If you are exempt from federal income tax withholding because you did not owe any federal income tax last year or do not expect to owe any this year, you have the option of not having any of your pay subject to withholding. If you are exempt, skip to Step 4 and type “EXEMPT” in the applicable area (c). The next step is Step 5.
If not, continue with steps 2-4.

Step 2: Multiple Jobs or Spouse Employment

Step 2 must be completed if you are married and/or have more than one income source (i.e., both you and your spouse work). In the following, you can choose between three alternatives:

  1. Make use of the Internal Revenue Service’s Tax Withholding Calculator. With this IRS calculator, you can determine how much money will be withheld from your paychecks depending on your salary, the salary of your spouse (if you’re married), any other taxable income you get, and any tax credits and deductions you expect to claim. Gather your most recent paycheck stub (and your spouse’s, if married), information on any other sources of income, and your most recent tax return before using the tool. The tool will guide you through a series of questions about your filing status, dependents, income, how frequently you are paid, and your tax deductions and credits (c).
  2. Make use of the Spreadsheet for Individuals with a Number of Different Employments. You may rely on the estimation tool the most. If you have more than one job and would prefer not to enter your information online, you can use the worksheet on Page 3 of Form W-4 to estimate your withholding. Just make sure you follow the instructions carefully to prevent having too much or too little tax withdrawn.
    Remember to tick the appropriate box. Check the box in Step 2 if you only have two jobs and the salary is about the same (c). In this case, your withholding will be calculated as if the standard deduction and tax brackets were each halved for each job. If you choose this option, be sure to select it on both copies of Form W-4 that you submit to your employers. However, if you’d rather not let your primary employer know about your side gig, you don’t have to disclose it. If you’re self-employed, the Internal Revenue Service allows you to make anticipated tax payments to them on your quarterly income instead of having them withheld immediately from your paycheck.

Step 3: File a Dependent Claim

In order to claim any dependents on your tax return, you must go on to Step 3. Keep in mind that even if your spouse doesn’t work, they are never considered a dependent by the Internal Revenue Service.

In this part, we calculate how much of a tax credit you might expect to get for your dependents, including children.

In the first Step 3 box, enter $2,000 for each kid who was financially dependent on you in the previous year and was under the age of 17 at the conclusion of the year. The total amount for all other dependents should be entered in the following field. After that, insert the sum of the first two boxes into Box 3.

Box 3 is for the amount of any extra tax credits you’re entitled to. Such things may include:

  • Grants for higher education
  • Income Tax Refund for Workers Who Have Been Unemployed
  • Tax deduction for dependent care expenses
  • Credit for adoption expenses

Step 4: Other Modifications

If you have any additional sources of income, deductions, or modifications to your withholding that you would like your employer to take into account, you can include them in the “Other” area of Step 4.

Step 4(a) is where you’ll specify the sources of income (other than wages and self-employment) that you wish to be factored into your employer’s withholding computation.

Withdrawals from retirement accounts, unemployment payments, and Social Security benefits are all examples of income from which taxes have already been deducted.

Use the deductions worksheet located on Page 3 of Form W-4 to complete Step 4(b). Find out if you should itemize your deductions or take the standard deduction with this handy spreadsheet. It also factors in additional tax deductions you may be eligible for, such as:

  • Interest on student loans
  • Contributions to a deductible IRA
  • Other changes to Schedule 1

Step 4: Enter the Worksheet Result (b).

If you have any additional taxes that you would want to have deducted from your paycheck on a regular basis, you can do so in Step 4(c). If you were paid twice a month and want your company to withhold an extra $5,000 every year, you would put $208.33 ($5,000 divided by 24 payments) here.

Include any extra withholding that was suggested by the withholding calculator or the multiple employment worksheet in Step 1.

Step 5: Sign Here

The final portion of Form W-4 just has you put your signature and the date. Following that, please send the completed form to your company’s HR division.

When to Complete Form W-4

If you’re starting a new employment, you’ll need to fill out a W-4 tax form. But if your tax status changes, you may submit a new W-4 form. New W-4 forms are typically filled out for a variety of reasons, including:

  • Getting hitched, breaking up, etc.
  • Being a parent
  • The realization that your prior year’s tax withholding was either too high or too low
  • Obtaining a large increase in pay or bonus
  • Taking on or dropping a part-time occupation
  • Giving up a lot of money
  • Investing in a Home

Bottom Line

Income tax withholding for the federal government can be estimated with the use of Form W-4. In order to have state income taxes taken from your salary, your employer may require you to fill out a state-specific form if your state has an income tax.

Whenever there is a significant change in your personal circumstances, you should think about revising your W-4. Your tax situation may change drastically if you have a baby or change jobs. Filling out a W-4 can help you avoid an unexpectedly high tax payment.

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