Calculating Your Withholding Tax

Money disappears from your paycheck for social security, childcare, retirement, insurance, and, likely the largest amount, goes to pay your income taxes. If you typically get a large refund or end up owing a significant amount at tax filing time, you may want to make an adjustment on form W-4.

You are probably familiar with Form W-4 (aka “Employee’s Withholding Certificate”). This form gives the employer information needed to withhold taxes from each employee’s paycheck. It’s short and appears to be fairly simple to complete. Short, yes. But, simple is sometimes not the case.

If you are married, have children, or have more than one income, it’s advisable to carefully review your family and household income data before making your elections.

Getting Started

Make sure you carefully review the instructions before entering information.

Single Tax Filer with One Job: If you are single and have one job, you get to jump from Step 1 to Step 5, the signature line. Before you jump, however, consider your other income sources and tax deductions. If you don’t have other taxable income or use the standard deduction when filing your tax return, go ahead and sign. However, if you have other taxable income or can itemize expenses on Schedule A when filing your tax return, you should complete Step 4.

• 4(b) allows you to enter the larger tax deduction (itemized versus standard). Thus, the tax withholding from your pay could be less.
  
  
• 4(c) allows you to indicate an additional amount to withhold. If there is no withholding from the other income source, you can enter anticipated tax here.
  
  

Single with More than One Job: Each employer will likely require that you complete Form W-4. Therefore, you must complete each form in consideration of the other.

• Highest paying job: Complete Steps 2 through 4(b) as applicable
  
  
• Lower paying job: Complete Step 1 only, sign and date
  
  
• Two jobs with similar pay: Check the box in Step 2(c) on both employer forms
  

If you hold more than one job and prefer not to indicate such with your employers, you can opt for extra withholding on Form W-4 with the highest paying employer.

Married and Both of You Work: Again, make sure that both of you complete the form in consideration of the other.

• Both have similar incomes: Check the box in Step 2(c). Both spouses must check this box on their respective forms.
  
  
• Income is dissimilar: The spouse with the higher income must complete Steps 2 through 4(b); the other spouse should complete Step 1, sign, and date.

Worksheets are available (and noted under Step 2) for taxpayers who hold two or more jobs, whether single or married. Using the worksheets will help determine an appropriate withholding amount considering all compensation and your tax filing status.

For Those of You with Children or Dependents

Make sure that you complete Step 3 if you claim dependents on your tax return. Note that total income must fall within the range indicated for claiming a tax credit. (In 2021, that amount is $200,000 or less for single tax filers; $400,000 or less for those who are married and file jointly.) If you are eligible for the tax credit and complete this step, your withholding may be reduced.

If you want less taken out of your paycheck, consider increasing the number of dependents, regardless of the number of dependents you actually have.

Closely Consider Step 4

This step provides an opportunity for additional withholding if you prefer. Increasing the withholding on your compensation can eliminate having to pay quarterly tax estimates on other unearned income, such as investment income.

On the flip side, it also allows you to reduce the withholding amount to claim tax deductions greater than the standard deduction.

State Income Tax Withholding

If your state charges an income tax, you will also have to complete a withholding form with your state.

Summary

It’s not necessary to update this form each year. However, if your tax filing status, number of dependents, or earned income changes, then you should file an updated W-4 with your employer. Likewise, if you tend to get sizable refunds or fall short and owe additional tax in April, making an adjustment on your W-4 should be considered.

Form W-4 can be found on the IRS website or you could ask your employer for the document.

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