Form W-4: Employee’s Withholding Certificate Explained

The IRS Form W-4, officially called the Employee’s Withholding Certificate, is a tax form that U.S. employees complete to tell their employer how much federal income tax should be withheld from their paycheck. Employers use the information from the W-4 to calculate payroll taxes and remit the appropriate amount to the Internal Revenue Service (IRS).

Why is Form W-4 Important?

Form W-4 directly affects your take-home pay and your annual tax liability. If you withhold too little, you may owe the IRS at tax time. If you withhold too much, you might get a refund but will have given the government an interest-free loan. A properly completed W-4 helps employees balance paycheck amounts and tax obligations.

Key Sections of the W-4

• Personal Information: Includes name, Social Security Number (SSN), and filing status (Single, Married, Head of Household).
• Multiple Jobs or Spouse Works: Adjustments if the household has more than one source of income.
• Dependents: Allows you to claim credits for children or other dependents, reducing withholding.
• Other Adjustments: Optional section to account for other income, deductions, or extra withholding.
• Signature: The form must be signed and dated to be valid.

Example Scenario

Imagine Sarah, a single employee with one job and two children. By filling out her W-4 and claiming the Child Tax Credit, her employer withholds less money from each paycheck, leaving her with more take-home pay throughout the year.

W-4 vs. W-2

A common confusion is between the W-4 and the W-2. The W-4 is filled out by the employee at the start of employment or when circumstances change, while the W-2 is issued by the employer each year to report total wages and taxes withheld.

When to Update Your W-4

Employees should update their W-4 whenever they experience significant life events, such as:

• Getting married or divorced
• Having or adopting a child
• Starting a second job or spouse gaining employment
• Changes in eligibility for tax credits or deductions

How Employers Use the W-4

Employers input W-4 data into payroll systems to determine the amount of federal income tax withheld each pay period. The IRS requires accurate withholding to ensure compliance and avoid penalties.

Tip: Use the IRS Tax Withholding Estimator to check if your current W-4 settings match your tax situation.

W-4 vs W-2 (Quick Comparison)

These IRS forms serve different purposes in payroll and taxes. Use this guide to know which one you complete and which one you receive.

Form W-4 — Employee’s Withholding Certificate

• Who completes it: The employee.
• When: At hire and whenever your situation changes (marriage, dependents, second job).
• Purpose: Tells the employer how much federal income tax to withhold from each paycheck.
• Key inputs: Filing status, dependents, other income, deductions, extra withholding.
• Used by: Employer payroll to calculate withholding each pay period.

Form W-2 — Wage and Tax Statement

• Who issues it: The employer.
• When: Annually, delivered to employees by January 31 for the prior tax year.
• Purpose: Reports total wages and taxes withheld (federal income tax, Social Security, Medicare, state/local where applicable).
• Key data: Boxed totals for wages, tips, tax withholdings, retirement contributions, and more.
• Used by: Employees when filing their personal tax returns.

Which do I submit and where?

• Submit W-4 to your employer (not to the IRS) so payroll can set your withholding.
• Use W-2 with your tax return to file with the IRS and state tax agencies.

Simple example

• Start a new job: You complete a W-4 to set withholding. At year-end, your employer sends you a W-2 summarizing wages and taxes withheld.
• Life change midyear: You update your W-4; your next paychecks reflect the new withholding. Your W-2 at year-end shows totals for the entire year.

Tip: If you consistently owe or get a large refund, adjust your W-4 and use the IRS Tax Withholding Estimator to dial in your paycheck withholding.