Taxpayer asks:
I hope you don’t think this is too simple a question but I’m a confused newbie. I started a new job this week. They asked me to fill out tax forms. One of them is a W-4. I didn’t know what to do with it and the HR person told me to just claim zero, so I did. Was that the right thing to do? I don’t know what it means. Should I hire an accountant?
Taxgirl says:
A form W-4 (downloads as a pdf) is the form that taxpayers use to tell their employers (not the IRS) how much federal income tax to withhold. Throughout the year, in addition to your FICA (Social Security and Medicare taxes), state and local taxes, your employer may withhold federal income tax. The amount withheld is applied towards your overall amount due come tax time. If you’ve withheld too little, you will owe and depending on the amount, you may owe a penalty. If you’ve withheld too much, you’ll get a refund. Ideally, you’ll have withheld an amount that’s just right so that you’ll neither owe nor are due a refund (remember that refund is your money that you didn’t have the use of during the year).
The key to the form W-4 is to use the worksheets. The number that you enter on line 5 of the W-4 is taken from the worksheets either at the top of the form (for most taxpayers) or on page 2 of the form (for itemizers and multi-job earners). Follow the instructions and do the math – voila, there’s your number for withholding.
You do have some choices, though. If you don’t want to use that number for whatever reason, you can adjust it up or down. As a general rule, the higher the number, the less that your employer will withhold each pay period. Conversely, if you “claim zero” as your HR person advised, your employer will withhold the maximum amount allowable of federal income tax. Depending on your personal situation, this might be a good choice. But if you’re married, have kids, work more than one job or own a house, this might be too much withholding. You can check your withholding using the IRS withholding calculator.
If you’re taking out too much (or too little), don’t panic. You can adjust the amount by changing your form W-4, just submit a new one to your HR department. Some employers ask you to fill a new one out every year for this very reason. And you should always double check your allowances on the W-4 if you have any major life changes including getting married or divorced, getting a raise or having kids.
As to the “should I hire an accountant?” piece, the answer to that is “I don’t know.” But here’s my take on the whole thing. It absolutely never hurts to know a couple of good professionals. I firmly believe that every taxpayer should have a good lawyer in mind, as well as a good accountant, even if you never use them– because when you do need one isn’t the best time to start looking. Get on a couple of newsletter mailing lists, make a couple of phone calls and get to know some folks (you can find tips for choosing a tax preparer here). Put them on your speed dial or in your Blackberry for just that situation when you have questions.
I hope that helps – and good luck with the new job!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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