The purpose of IRS form W-4 is to provide employer's with the information necessary to withhold the proper amount of federal income tax from an employee's pay.
Included on the W-4 form are three worksheets the personal allowances worksheet, deductions and adjustments worksheet, and the two-earners/multiple jobs worksheet.
The personal allowances worksheet assists taxpayers that are deciding on what exemptions they can claim for self, spouse, and/or dependents. It also covers the option to take exemptions for head of household filing status and the child tax credit.
The deductions and adjustments worksheet is for taxpayers that plan on itemizing their deductions or know that they will be claiming certain credits. Within the publication with the information for form W-4 are examples of credits and adjustments that may be taken into consideration when deciding on withholdings from pay.
The two-earners/multiple jobs worksheet is designed for single taxpayers with multiple jobs or a married couple that both work. All three of these are meant to be used as a guide and kept for the taxpayer’s records.
A useful calculator
With an entire publication (Pub. 505) dedicated to the form, it is easy to see the usefulness of a calculator. Using a W-4 calculator eliminates the question of what exemptions should be taken and if any additional withholdings may be necessary.
Since this information directly affects the yearly tax return, it is imperative that the most beneficial withholdings are established early in the tax year. If a taxpayer uses a W-4 calculator and discovers that their withholdings need to be changed they may do so with their employer's human resources department. Changes should not take more than one pay period to take effect.
The major e-filing companies such as TurboTax have a W-4 calculator built into their software when filing taxes and offer to do a review of withholdings for the year to come.
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