Definition
The term Form W-4 refers to a document used by employers to calculate the federal income tax withholding for their employees. Internal Revenue Service (IRS) Form W-4 gathers information on an employee's itemized deductions, tax credits, adjustments to income, and whether or not there are two-earnings in the household or an individual holds multiple jobs.
Explanation
During the onboarding process, new employees are asked to complete IRS Form W-4. The information on this document is subsequently used by the company's payroll department to determine the correct amount of federal income tax withheld from the employee's paycheck. Employees should also consider completing a Form W-4 any time their personal or financial situation changes.
The types of information gathered on this form include:
If the employee is claimed as a dependent on another person's federal income tax return.
If the employee is married or single, and their sources of income.
If they qualify for a Child Tax Credit.
The number of allowances claimed on a federal income tax return.
Any additional amounts the employee would like withheld from their paycheck.
If they plan to itemize deductions, and the value of those deductions.
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