2018 w4

The 2018 W4 Form and How to Complete It

How to Fill Out the Form W4 When You Start a New Job

The new tax reform resulted in updates to IRS Form W4. This the form that everyone must fill out before starting a new job in the US! Today we will explain exactly what the form is and how you should fill it out. Most people fill the form out without understanding it, but it can make a big impact on your finances if you do it incorrectly!

New Job… Now What?

Growing up, our family didn’t have a whole lot of (actually, almost any) money. Like many of you, we were raised by a single mom, and upon entering high school we began to work to help pay bills and also buy some of the things we didn’t have. Camilo worked at a car dealership detailing and cleaning cars, at a local electronics store selling computers, and at a retail store at the mall selling sunglasses. Francisco worked as grocery store cashier and at a pharmacy as a technician. Between the two of us, we’ve had 20+ different jobs over the years. But it wasn’t until recently that we realized we never actually understood what any of the tax forms we filled out were.

The W4 Form from the IRS Tells Your Employer How Much Federal Tax to Collect

One form you’ve seen every time you start a new job, but probably never paid much attention to is called the IRS Form W4 or the ‘Employee’s Withholding Allowance Certificate’. All new employees need to fill out the W4 Form since it determines how much federal (US National) tax will be withheld from your paycheck and sent to the government. The IRS, or Internal Revenue Service, is the group within the government that collects federal taxes. The government uses the information from the W4 form to determine how much federal tax should be withheld from you throughout the year, instead of waiting to send you big bill at the end of the year.

The government will try to collect the full amount unless you qualify for allowances. The 2018 w4 is the form that is used to calculate or specify whether you qualify for any withholding allowances.

The major factors that determine how much tax your employer withholds from your regular pay are[1]:

  • The amount you earn;
  • Whether you are single or married;
  • The number of withholding allowances you claim on the W4 form. (Each allowance reduces the amount withheld.); and
  • Whether you want or need an additional amount withheld

Why does the W4 actually matter?

This form is important because if not enough money is withheld from your paycheck, you’ll be on the hook for a large tax bill during tax season and potentially a fine. Tax Day is when the previous year’s taxes are due and it usually falls around April 15 of each year.

You may also have to pay a penalty or fine if not enough is withheld, so it is important to fill the w4 form out correctly. On the other hand, if too much money is withheld, you’ll receive smaller regular paychecks and receive a refund at the end of the year. While receiving a larger tax refund at the end of the year is nice, it’s better to receive the money sooner because that money can be saved, invested, or used for something else.

What does the W4 Form even look like?

The W4 Form consists of 4 pages and says Form W4 in bold letters on the top left hand of the 1st page. The form was updated for the 2018 tax year, so you’ll want to be sure that you see the year at the top of the form.

2018 W4 – Page 1

The top of the first page has a few definitions and includes the beginning of the instructions for the form. The bottom of Page 1 is the actual Form W4 that you’ll need to give your employer once you’ve filled it out. This portion that you’ll have to hand in to your employer is called the Employee’s Withholding Allowance Certificate.

2018 Form W4

2018 W4 – Page 2

Page 2 consists of the remainder of the instructions for filling out the form. This page is for reference and will not be submitted to your employer.

2018 W4 – Page 3

Page 3 contains two components. The first is the ‘Personal Allowances Worksheet’. This worksheet determines the number of withholding allowances to claim. The 2nd component of page 3 is comprised of the ‘Deductions, Adjustments, and Additional Income Worksheet’. This page will tell you if you are able to reduce the tax withheld to account for itemized deductions to income. This page will NOT be submitted to your employer. You can think of it as scratch paper to help you with any calculations.

2018 Form W4 Page 3

2018 W4 – Page 4

Page 4 is solely comprised of the ‘Two-Earners/Multiple Jobs Worksheet’. This sheet will only be filled out if you have more than one job at a time or are married filing jointly and have a working spouse. This page will also NOT be submitted to your employer.

2018 Form W4 Page 4

The W4 Form is Confusing to Fill Out, So Let’s Break it Down Into Simple Steps

Step 1: Congrats on the new job!

Take a second to reflect on that fact that your interviews are over and you finally got the job! Now you’ll want to sit down, relax, and fill out the W4 form.

Step 2: Complete lines 1 to 4 of the W4 Form

Lines 1 – 4 ask for your personal information like name, address, social security number, and marital status. Easy peasy.

If you have a more complicated tax situation, or prefer to use an online calculator, the IRS has a W4 withholding calculator that you can use in lieu of the additional worksheets. Otherwise, continue to step 3.

Step 3: Skip lines 5 and 6 on the W4 Form and complete line 7.

To complete line 7 you need to figure out if you’re exempt from paying federal tax (most people are NOT exempt). If you are exempt, which means you do not need to pay federal taxes, you should write “Exempt” on Line 7, otherwise leave blank. See below for how to determine if you are exempt or not.

You can claim exemption from withholding for the current year only if BOTH the following situations apply [2].

  • For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability.
  • For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.

This usually applies if you earn less than $12,000 if you are single (or less than $24,000 for a married couple). If you think you might qualify, the IRS has a calculator you can use to determine if you are exempt.

2018 Form W4 Exemptions

Step 4: Fill out the Personal Allowances Worksheet (Page 3)

The Personal Allowances section is located at the top of page 3. This section determines whether you will pay less taxes based on certain credits or circumstances, like having children. This section is more straightforward this year. Complete it in order from Line A to Line H.

Line G asks you to refer to Worksheet 1-6 of Pub. 505. We’ve included an image of that worksheet below so that you can see if it applies to you.

2018 Form W4 Worksheet 1-6

Step 5: Fill out the Deductions, Adjustments, and Additional Income Worksheet

The Deductions, Adjustments, and Additional Income Worksheet is located on the bottom half of page 3, below the Personal Allowances Worksheet.

You should fill out this worksheet if:

  1. You plan to itemize your deductions when you file your taxes; or
  2. If you plan to take advantage of other tax credits that you might qualify for.

There are two ways you can take deductions on your federal income tax return:

  1. You can itemize deductions; or
  2. Use the standard deduction.

The new standard deduction for the 2018 tax year is $12,000 if single, $24,000 for married individuals filing a joint return, and $18,000 for head-of-household filers. Remember that deductions reduce the amount of your taxable income. [3]

Who Should Itemize Deductions

One strategy to determine if you will itemize deductions is to base it off of what you did in the prior year. Another strategy is use a free tax program (TurboTax won’t charge you to use their software until you file so you can use the product for free to evaluate your situation) and see which deductions or credits you qualify for.

Generally, it could make sense to itemize your deductions on your taxes if you [4]:

  • Don’t qualify for the standard deduction, or amount you can claim is limited;
  • Had large uninsured medical and dental expenses during the year;
  • Paid interest and taxes on your home;
  • Had large unreimbursed employee business expenses or other miscellaneous deductions;
  • Had large uninsured casualty or theft losses of your home, household items and vehicles;
  • Made large contributions to qualified charities; or
  • Have total itemized deductions that are more than the standard deduction

Step 6: Fill out the Two-Earners/Multiple Jobs Worksheet (Page 4)

If you are single and have more than one job and your earnings from all jobs total more than $52,000, or are married AND you and your spouse both work with combined earnings from all jobs totalling more $24,000, you should fill out this worksheet. This sheet is straightforward and the instructions on the form are easy to follow.

Pro Tip: If you have a working spouse and your incomes are similar, you can check the “Married, but withhold at higher Single rate” box instead of using this worksheet. If you choose this option, then each spouse should fill out the Personal Allowances Worksheet and check the “Married, but withhold at higher Single rate” box on Form W4, but only one spouse should claim any allowances for credits or fill out the Deductions, Adjustments, and Additional Income Worksheet.

Step 7: Complete Lines 5 and 6 on the W4 Form (Page 1)

Now that you’ve completed all of the forms, you have all the information you need to complete the 2018 W4 Form on Page 1.

Line 6 asks if you’d like to have an additional amount, if any, withheld. For the vast majority of people, they should put “$0” here unless they have a specific tax event during the year they’d like to offset, like a large bonus. In general however, most people will not opt for additional withholding here. If you really think this might apply to you, ask an accountant.

Once you’ve filled everything in and have signed and put the date on the bottom of the form where it says “Employee’s signature”, you can turn the form into your employer! Note that you only need to turn in the bottom third of Page 1 (the 2018 W4 Form). Jut fold and tear below the dotted line, and can keep the rest for your records.

Your employer is responsible for filling in lines 8, 9, and 10.

Now that you’ve completed and handed in the form, you’re all set! However, don’t forget that you should request and fill out a new form if you get married, get a new job, have a child, or go through another event that changes your federal tax situation!

A new job is a perfect opportunity to get your financial life in order!

Read our post on emergency funds if you don’t have one! It’ll be one of the first things you should save for once you start working! This is extra money that you’ll have in case of an emergency. It’s extremely important so that you don’t have to go into (more) credit card debt if your car breaks down, miss work, etc.

Lastly, if you don’t have a monthly budget for yourself or your family, this is the secret sauce to start building wealth! Good luck!

Comment below if you have any questions, or to share your W4 experiences!

Sources:

1 https://www.irs.gov/forms-pubs/about-form-w4

2 https://www.irs.gov/individuals/employees/tax-withholding

3 https://www.irs.gov/taxtopics/tc501

https://www.irs.gov/credits-deductions/individuals/deducting-casualty-disaster-and-theft-losses-at-a-glance

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4 thoughts to “The 2018 W4 Form and How to Complete It”

  1. Thank you for breaking down the W-4. I wish there was a class in college or high school that taught me all these important life lessons. Thankfully the Finance Twins are here to break it down!!

  2. I recently had to fill out this new W-4 form for my new job. I followed all instructions and came up with the number 11 for my deductions. This seems outrageous! I have two children and am a single mom. I claim my kids on my taxes as they live with me and I am head of household. I got my first check and only 8% was taken out for taxes. This does not seem right. Can you offer some guidance?

    1. Hi Heather, this sounds reasonable. Let’s assume you earn less than $69K. Therefore, you get 4 allowances for each child for a total of 8. You also get 1 allowance for yourself (line A) and 1 allowance for being the head of household (line C), which brings us to 10 already.

      If you really think there is a problem with the withholding, speak to your HR person, and also look at your taxes last year to see what your effective tax rate was. Basically, look at how much tax you paid, add back a refund (if you got one) and see what % was roughly owed. If this is vastly different than what you are seeing now, then there’s more to look into. Also, remember we aren’t accountants or financial advisors so ask a trusted advisor if you need help with specifics. Good luck and thanks for reaching out!

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