When you start a new job, your employer will ask you to fill out Form W4. You must give completed Form W4 to your employer. You may get Form W4 from your employer or download this form from the IRS site.
The purpose of the form is to tell your employer how much tax they should withhold from your pay check. The amount of income tax your employer withholds from your regular pay depends on the amount you earn and the information you give your employer on Form W4. If you claim more allowances on your W4, your employer will withhold less federal and state taxes from your pay check. And if you put less allowances on your W4 the employer will withhold more federal and state taxes from your pay check. However, the Social Security and Medicare taxes (or FICA taxes) don't depend upon the allowance on your W4; they are deducted at a fixed percentage rate. The Social Security tax is 6.2% of the first $102,000 in wages for 2008 (or $97,500 of wages in 2007) and the Medicare tax is 1.45% of all wages.
If during the year there is a change in your marital status or the exemptions, adjustments, deductions or credits you expect to claim on your tax return, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances.
Information of W-4.
Form W-4 includes three types of information that your employer will use to figure your withholding.
1. Whether to withhold at the single rate or at the lower married rate. (line 3 of W-4).
2. How many withholding allowances you claim. Each allowance reduces the amount withheld. (line 5 of W-4).
3. Whether you want an additional amount withheld. (line 6 of W-4).
Claiming Exemption from Withholding
You can claim exemption from withholding (line 7 of W-4) if
1. Last year you had a right to a refund of all federal income tax withheld because you had no tax liability and
2. This year you expect a refund of all federal income tax withheld because you expect to have no tax liability.
If some one can claim you as a dependent, then you can’t claim the Exempt status if your income exceeds $900 in 2008 and includes more than $300 of unearned income.
When you write Exempt on line 7 of Form W-4 and sign the form, your employer will not withhold federal and state income tax from your pay check. They will still withhold Social Security and Medicare Taxes and other State taxes. Claiming exempt on your W-4 does not mean that you are exempt from federal tax or state tax if you have taxable income. It only means that employer will not withhold any income taxes from your paycheck.
Personal Allowances Worksheet
Form W-4 has a Personal Allowances Worksheet to help figure out the number of allowance you should claim on your W-4. The worksheet has lines A to H. The worksheet is self explanatory and easy to complete. Once you complete this worksheet as per your own information, you will get reasonably accurate figure for the allowances you should claim.
Withholding Tax and Your Tax Return
Withholding tax is not the same as paying tax as per your tax return. Normally on or before January 31st of the next year, your employer will send you a form W-2 Wages and Tax Statement. The form shows your total income and the amounts of various taxes withheld from your wages. The information includes Social Security tax, Medicare tax, Federal Income Tax, State Income Tax, other State taxes.
Every year, if your income exceeds the filing requirements, you must file your federal and state income tax returns on or before the due date. The due date to file 2007 income tax return is April 15, 2008. On the return you must report all your income for the year. The income includes your total wages as reported on from W2. Based on your incomes and deductions you will compute your taxable income and the federal income tax and state income tax on the income.
Now you will also figure out how much tax you have already paid, which is equal to withholdings as reported on W2 and 1099 forms, your estimated tax payments and all other tax payments. If you have paid more federal taxes than your federal tax liability as per your return, then you will get a refund. If you paid less federal taxes than your federal tax liability as per your return, then you must pay it, and you may even have to pay interest and penalty.
Penalties for False Information
You may have to pay a penalty of $500 if both of the following apply.
1. You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
2. You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.
There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.
These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error, an honest mistake, will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty.
More info : http://www.irs.gov/individuals/article/0,,id=139412,00.html
Your Filing Status
1. Filing Status for Married
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
1. Filing Requirement for a Dependent
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
1. Itemized Deductions
2. Moving Expenses
3. Student Loan Interest Deduction
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