The W-4, officially called the Employee’s Withholding Certificate, is the form you submit to your employer to tell them how much federal income tax to withhold from each paycheck. Get it right and you roughly break even with the IRS at tax time. Fill it out incorrectly and you either owe a large bill in April or hand the government an interest-free loan by overwitholding all year.
Why the W-4 Matters
Federal income taxes are pay-as-you-go. Instead of writing one large check in April, you pay taxes throughout the year via withholding from each paycheck. The W-4 determines how much your employer withholds. If withholding is too low, you owe taxes plus potential underpayment penalties at filing. If withholding is too high, you overpay and receive a refund — but you have given up the use of that money for months.
When to Submit a W-4
- When you start a new job
- When you get married or divorced
- When you have a child or other dependent
- When you take on a second job
- When your spouse starts or stops working
- When you have a major change in income, investments, or deductions
- When you owed a large amount or received a large refund at tax time
How the Current W-4 Works (Post-2020 Form)
The IRS redesigned the W-4 in 2020. The old allowance-based system (claiming 0, 1, 2 allowances) no longer exists for new forms. The current form has five steps:
- Step 1 (required): Personal information — name, address, Social Security number, filing status (single, married filing jointly, head of household)
- Step 2 (optional): Multiple jobs or spouse works — use this if you have more than one job or if both you and your spouse work. Options: use the IRS withholding estimator, use the Multiple Jobs Worksheet, or check the box if you have exactly two jobs at roughly equal pay.
- Step 3 (optional): Claim dependents — reduces withholding based on child tax credits and other dependent credits. Multiply qualifying children under 17 by $2,000, and other dependents by $500.
- Step 4 (optional): Other adjustments — add income not subject to withholding (investment income, freelance), claim deductions above the standard deduction, or request an additional flat dollar amount withheld each pay period.
- Step 5 (required): Sign and date.
Steps 2–4 are optional but completing them improves withholding accuracy.
Single With One Job: The Simple Case
If you are single with one job and no dependents, complete Step 1 and Step 5 only. Your withholding will be based on the standard deduction and your filing status. You may still owe or receive a small refund depending on other factors, but it will generally be close.
Married Filing Jointly With Two Incomes
This is the most common situation where people get into trouble. When two spouses work, their combined income pushes them into a higher tax bracket than either spouse’s withholding calculation accounts for. If both spouses complete their W-4s based only on their own income, each will underwithhold. Use the IRS Tax Withholding Estimator (irs.gov/W4App) to calculate the correct withholding, then use Step 4(c) to add an extra amount to one spouse’s withholding.
Freelancers and Side Income
If you earn income outside your W-2 job — freelance, consulting, rental income — no employer is withholding taxes on that income. You have two options: pay quarterly estimated taxes directly to the IRS, or increase your W-4 withholding at your day job enough to cover the tax on your side income. Use Step 4(a) to enter the expected additional income, and the form will calculate additional withholding.
How to Check Your Withholding
The IRS Tax Withholding Estimator at irs.gov/W4App is the most accurate tool. You will need your most recent pay stubs and last year’s tax return. The estimator tells you whether you are on track, whether you are likely to owe, and what to change on your W-4 to fix it. Run it every January and after any major life change.
Claiming Exempt from Withholding
You can claim exempt (write “Exempt” in Step 4(c)) if you had no federal tax liability last year and expect none this year. This is appropriate for very low-income situations. If you claim exempt incorrectly, you will owe the full amount at tax time plus potential penalties. Employers are required to submit W-4s claiming exempt to the IRS for review.
Bottom Line
File a new W-4 whenever your life changes — new job, marriage, kids, second income. Use the IRS withholding estimator once a year to verify you are on track. The goal is neither a large refund nor a large bill: roughly break even in April, and keep your money working for you throughout the year rather than sitting with the IRS.