Remember when you got your first job? Getting that first paycheck was AWESOME. It may have been 50 years ago; it may have been only yesterday, but, associated with it was that pesky task of filling out a W-4.
As a beginner (first pay check experience) many first-time employees have questions about the W-4 and, with implementation of the Tax Cuts and Jobs Act, all employees have been advised to review the allowances they report on a W-4 so here are a few answers.
- What is a W-4? The Employee’s Withholding Allowance Certificate is a form, including a worksheet, that tells how much tax should be withheld from a pay check. Every time payroll is run, a piece of each paycheck— the withholding tax — is withheld by the employer and sent directly to the federal government in your behalf.
- What is an Allowance? Basically, allowance is an exemption people can claim that then influences how much is withheld from their paychecks. People get a certain number of allowances based on things like their filing status, marital situation, and a range of other factors. The more allowances claimed, the less money is taken out of a paycheck (take-home pay bigger). Claim “0” and the maximum allowed will be taken out (take-home pay smaller)
- What is best? A bigger pay check is not always better. The amount of withholding is credited towards tax due each year. If enough is not withheld, there will be a balance due the IRS at tax time. If too much is withheld, the IRS will owe the taxpayer a refund. The key is to find the right balance.
It is never a bad time to review your W-4 allowances to be sure your pay check is not too big nor too small. Just a tip from Stapley Accounting, your QuickBooks and payroll professionals.
