Payroll service tips for filling out a W4

We find many errors on form W4 from our client’s employees. Some require the form to be redone, while other mistakes are probably costing the employee undue hardship with income tax owed at the end of the year. Here’s a few tips to consider:

  1. How do I know if I’m exempt from withholding? You can take a pass on withholding if you owed no tax last year and expect to owe nothing this year, either. (This means zero tax liability for the year, not whether you owe tax or get a refund when you file.) The reality is that very few employees are exempt.
  2. How do allowances work? The number of allowances you claim controls how much will be withheld from your paycheck. The more you claim, the less money that is withheld; the fewer, the more of your salary is sent off to the IRS. Choose wisely because you could be penalized for grossly exaggerating your allowances to avoid payroll tax.
  3. Married couples should consider the total number of allowances between them, and then divide this by two. Otherwise they are bound to face a larger than expected tax bill at year’s end.
  4. A new W4 should be filled out when you get married, divorced, have a baby, start a new job, or if you receive a very large tax refund, or end up owing a significant amount.

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