What is a W-4? A Guide to the Employee's Withholding Certificate

IRS Form W-4

As a business owner, there are few things in life that feel as good as seeing your business succeed. And one indicator of such success? Growth—like bringing your first employee onto your team! And then following up with the immediate next step: Form W-4.

Form W-4, also sometimes referred to as the Employee’s Withholding Allowance Certificate, is one of those business forms that might leave you with some questions. Some common ones include: Who fills this out? When is it due? And, of course, what is a W-4 form anyway?

We’ve heard the same questions, and (because we’re pros), we have the answers… and because we’re known to be super-duper helpful, we’ve put those answers in this handy-dandy guide into the world of W-4 forms. Here’s what this guide will cover:  

  • What is a W-4 Form?
  • Why do employers need W-4 forms for their employees?
  • When should employees fill out Form W-4?
  • What's included on Form W-4?
  • How to submit a completed Form W-4
  • Frequently asked questions about Form W-4
  • The bottom line on Form W-4

Let’s get to it! 👇

What is Form W-4?

Form W-4, also known as the Employee's Withholding Certificate, is a tax-related document that’s used by the IRS. Most US employers are required to give it to their employees when they’re hired. Its purpose is to determine the correct amount of federal income tax that will be withheld from the employee’s wages.

The information provided on Form W-4 helps to ensure that the appropriate amount of taxes is being withheld. It takes into account factors such as the employee's filing status, dependents, and other relevant tax considerations.

For example, if your new employee is working two jobs or has dependents like kids or a spouse, the taxes that are withheld might look a bit different than, say, the 22 year-old paid intern who's just brought on who still lives with their parents and is noted as a dependent of their parents.

When it comes to filling W-4 forms out, both the employee and the employer need to ensure that the W-4 is not just completed on time, but kept up-to-date. For example, if the intern we mentioned above graduated while in the midst of their internship, they’re no longer a student and therefore, might not be considered as a dependent. The result? An update to their Form W-4 and probably some different withholdings.

More of a visual learner? Here’s what Form W-4 looks like:

Form W-4

Why do employers need W-4 Forms for their employees?

Employers have a lot of jobs to do… especially when it comes to paying their employees properly. And we’re not just talking about tracking overtime properly so your new hire gets paid for those extra few hours they put in last week. (But that, too).

We’re talking about withholding tax: the income tax amount that’s withheld from a worker’s wages and paid straight to the government by their employer.

When a paycheck is issued to an employee, the employer must withhold a certain amount for income taxes, along with FICA taxes. The employer then deposits that withholding with the appropriate tax authority.

But how much to withhold? That amount is called “a percentage of the top-line income” and the actual amount can changed based on the following factors:

  • The individual employee’s expected annual earnings for the year
  • Their marital status
  • Additional deduction amounts

It’s a lot to track, which is where Form W-4 comes into play.

P.S. Hired a new employee? Make sure to report them to your relevant State Directory of New Hires. Form W-4 can help with that, too.

When should employees fill out Form W-4?

Wondering when new employees should fill out Form W-4? That should be on day one. Here’s why: the legal requirements of reporting your new hire to the proper tax and other authorities kicks in when the employee first starts work, even if the employee is a rehire.

That said, depending on the state that your business is located in, the time frame you have to report a new hire using Form W-4 can vary. Sometimes, it’s even as short as seven days after hiring! To find out the rules for where your business operates, take a look at the state directory matrix before your new employee starts.

In addition to first-day requirements, there are a few other scenarios where you’ll need Form W-4 updated. This includes:

  • Name changes: Did an employee recently get married and change their name from John Smith to John Wick? Time for a W-4 update (and maybe a rewatch of our favorite action movie).
  • Adding dependents: Did a kid or spouse enter the picture? Make sure you’ve added them on the W-4.
  • Having more than one job: Did your paid intern take on a side gig serving at the restaurant down the street? Make sure that’s listed on their W-4.

These are just a few of the many reasons why employers opt to have employees complete a new W-4 form for each new year. But no matter the reason, remember: if there’s a change, employees must submit new forms ASAP—not just on an annual basis.

What's included on Form W-4?

Coming in a four-page packet, Form W-4 is true to its name. But the good news? It’s actually just one page with five steps.

  • Step 1: Name and address, social security number, and filing status (single or married filing separately).
  • Steps 2, 3, 4: These sections depend on your answers.
    • Step 2 only applies to those who work more than one job or have a working spouse.
    • Step 3 applies to you if you’re claiming dependents. 
    • Step 4 applies if you have special adjustments to your income, deductions, or withholding.
  • Step 5: Simply signing the form. ✍️

Next up is work for the employer. Enter the employer’s name and address, then the Employer Identification Number (EIN), as well as the first date of your new hire’s employment.

Oh, and those other three pages? They provide instructions as well as a tax table and worksheet for two-earners or those with multiple jobs.

How can employees use Form W-4 to owe nothing on their tax return?

Who wants a tax bill when they file their annual return? …Bueller? Bueller?

No hands? We didn’t think so.

If your goal is to make sure your paycheck withholdings are designed to result in a $0 tax bill, accuracy is your new W-4 BFF. Here’s a few tips to improve your accuracy.

  • Make sure you’re using the correct filing status. This is especially true if you’re filing as head of household. This status is typically for folks who are unmarried and provide a home for what’s called a “qualifying person,” like a dependent child or other qualifying relative. In order to claim this status on your W-4, you have to be unmarried on the last day of the tax year, pay more than half the cost of maintaining a home for yourself and the qualifying person, and have a qualifying dependent. Sound like you? If you haven’t updated the form in a while, make sure you do.
  • Family changes? Update your W-4. If you’ve recently married, had a kid, have a new dependent, or your teenager turned 18 this year or graduated school, update your W-4 to reflect these changes.
  • Account and estimate your other sources of income. If employees have more than one job or way of making money, like an AirBnB or freelance gig, it’s time to update Line 4(a) on the W-4.
  • Know your deductions (or what they could be). If you’re itemizing deductions to save more than the standard deduction amount, make sure you estimate those and then update Line 4(b) on your W-4. Otherwise, it’s a standard amount.
  • Use the line for extra withholding. If you want to make extra sure that you’ll have a $0 tax bill, have extra dollars withheld from your paychecks. You can add the specific amount in Line 4(c).

How to submit a completed Form W-4

Once the W-4 form has been completed, your local state can accept it in one of more of these methods:

  • Online state portal
  • Electronic reporting transmission
  • Mail or encrypted mail
  • Fax
  • Payroll service
  • Personal delivery

But remember, you are not required to submit or file these additional W-4 forms with the IRS—they’re used only for your business’s own withholding and payroll processes.

Frequently asked questions about Form W-4

Did the IRS change Form W-4?

The IRS changed W-4 by removing allowances. According to the IRS, the removal of allowances is “meant to increase transparency, simplicity, and accuracy of the form.”

The change makes it easier and more accurate for tax-paying individuals to withhold the right amount of federal income tax from paychecks.

How is Form W-4 different from Forms W-2 and W-3?

The information employees complete on Form W-4 denotes how much tax should be withheld from an employee’s pay. The final tally of that withholding is reported annually on Form W-2. This form is submitted to the Social Security Administration (SSA) by the employer.

Form W-3 is a complement to Form W-2. Form W-3 serves as a cover sheet for all of the annual W-2 forms an employer must file. Forms W-2 and W-3 IRS are both filled annually with the SSA, but Form W-4 is submitted whenever a new hire starts work and filed with the employer’s relevant State Directory of New Hires.

How is Form W-4 different from Form W-9?

Forms W-4 and W-9 are similar in that both need to be filled out whenever a new working relationship is formed. While Form W-4 is filled out by employees and submitted by employers, Form W-9 is used by independent contractors and the companies who work with them.

Form W-9 is how companies ask those freelancers and contractors for the information they’ll need to create a 1099-NEC form for them (when tax season rolls around). 

Do you have to submit the W-4 to the IRS?

Nope. They’re used only for your business’s own withholding and payroll processes.

Does an employee have to disclose to their employer that they have another job? 

If an employee doesn’t want to reveal that they have another job or extra source of income, they have a few options. Employees can use Line 4(c) to ask their employer to withhold extra taxes from their paycheck. Or, instead of having the taxes withdrawn from their pay, the employee can send estimated tax payments directly to the IRS.

What If an employee doesn’t submit Form W-4?

Submitting Form W-4 is a must for employees. If a tax-paying employee does not complete and sign their form, the IRS mandates their employer to withhold taxes at the highest rate possible.

The bottom line on Form W-4

If you’re hiring a new employee, have an employee who’s made some life changes (new job, new kid, new name), or are an employee who’s starting a new paid gig, W-4s are a must-do—and a must-do right. Especially if you don’t want a surprise tax bill at the end of the year.

To recap, Form W-4 is filled out by tax-paying employees in the US. It lets their employer know key information that dictates how much federal income tax should be withheld from their paychecks. It’s also a key document in preventing the under-or-over payment of taxes throughout the year.

Filling out the form is quite easy. It’s just one page broken out into a few different sections and steps. The steps include completing personal information (name, address, and how you’re filing), and questions to find out if you are working more than one job, are claiming dependents or if you have special adjustments to your income. Once everything is filled out, the employee signs the document.

Although the form is simple, some of the sections might leave employees wondering the right way to fill them out. For example, how to file (head of household, single, joint, etc.)? Or maybe you or your employees are wondering how to put in their other sources of income, like interest from investments. These parts require clear and accurate answers, and for that, we’ve got our Wave Advisors. Because we get it: forms are never fun and even the easiest ones can get a bit messy. Which is why we’re here to help answer all your questions. 👋