What Is W-4 Form And Who Needs It?

Irmak Kocyildiz

Irmak Kocyildiz

11 min read

2021-04-16T

What Is W-4 Form And Who Needs It?

What Is W-4 Form And Who Needs It?

If you are an employer, you may need to fill in and file different tax forms during a tax year. It is important to know what forms you should use when hiring someone new. The reason for this is because the forms you use vary depending on whether the person you hire is an employee or an independent contractor. If you have hired employees, you should use Form W-4; if you have hired an independent contractor, you should use Form W-9. There may be situations where employees and independent contractors also need to complete forms. In this article we will talk about the W-4 form. Who should complete the W-4 form? Employees or independent contractors? You may be confused about this. However, as we said, employees must complete the W-4 form and employers must provide this form to them. Let’s discuss it in detail.

What Is Form W-4?

The legal name of the Form W-4 is “Employee’s Withholding Certificate”. The form’s former name was Employee’s Withholding Benefit Certificate. However, the Internal Revenue Service (IRS) introduced a few changes to this form, being, that allowances are no longer included and calculated for these purposes. So the W-4 form does not calculate allowance anymore. With the new design, the complexity of the form has been reduced.

If you are an employer and hire a new employee, you must provide this form to your employee. Employees must complete this form when they start a new job and give it to their employer. If you are an employee, you must complete this form so that your employer can deduct accurate federal income tax from your salary. It is important to fill in this form correctly, because if there is a small deduction made by the Employer, you may have to pay tax debt or fines. You will also receive a refund if there are too many deductions.

You will have to provide a various amount of information on this form. With the W-4 form, you will have to inform the employer about your marital status, the number of dependents, and whether you have a second job. As we said, if you are an employee, you must complete this form when you start a new job, or you may need to fill in and submit a new Form W-4 when there is a change in your personal or financial status in addition to the present situation.

Form W-4 is completed by employees so that the employer can withhold the correct amount of federal income tax. So independent contractors do not use this form. Pay attention to this difference. That’s why it’s important to know the difference between whether the person you’re hiring is an independent contractor or an employee.

Independent Contractor vs Employee

If you are an employer, it is important to know the difference between  independent contractor and employee, because this situation determines whether you should withhold income tax from their wages. There are no tax deductions for payments made to independent contractors. Independent contractors pay the taxes themselves. However, employers deduct income tax from payments made to employees. So if you are an employee, the information that you provide on Form W-4 will determine how much federal income tax the employer must withhold from your salary.

Independent contractors often do not receive benefits that employees can receive from their employers, such as vacation pay, insurance, and retirement plans.

Independent contractors also decide how to do the job themselves. If the company or employer instructs how the job should be done, then that person is an employee.

Independent contractors can provide their own equipment, and they are responsible for their own work. The situation may be different for employees wherein they have to follow the instructions given by employers and the employer has the right to control the work.

In short, independent contractors pay their own taxes. Employers, on the other hand, deduct taxes from employees’ salaries.

What is the purpose of the W-4 Form?

Form W-4 is a form that states how much the employer should deduct from your paycheck. The information you provide on Form W-4 ensures the correct amount of federal tax withholding.

Who Fills The W-4 Form?

Employees fill in the W-4 Form. Employers use this form to calculate how much tax should be withheld from the employee’s paycheck.

Do independent contractors fill Form W-4?

Independent contractors do not fill in Form W-4. Independent contractors have to complete Form W-9. Form W-9 is a Tax Identification Number and a Certification Request. With the W-9 form, independent contractors provide their Tax Identification Numbers to employers. Employers then fill in Form 1099 using the information on Form W-9. Form W-4 is for employees.

W-2 Form vs W-4 Form

If you are an employer, it’s important to know about Form W-2 when talking about Form W-4. As an employer, you may have heard of Form W-2. Form W-2 is the Wage and Tax Statement form. This form informs the employee how much salary has been paid in a tax year and how much tax has been deducted. If you want to get more detailed information about Form W-2, you can check our Form W-2 Vs Form W-4 blog post. The amount of tax deduction to be made from the wage paid to the employee is also determined by Form W-4.

Payments made to independent contractors in a tax year are notified with Form 1099. Employers must complete and submit Form 1099 to the IRS and also to the independent contractors. For detailed information about Form 1099, see What Is 1099 Form And Who Needs It? You can have a look at our blog.

When is Form W-4 filed?

When employees start a new job, they must complete Form W-4 and submit it to their employer. If there are any changes that affects their tax situation, they must submit a new Form W-4.

What changes may affect your tax situation?

  • if you have a child
  • if you marry or divorce
  •  if you have a second job: because when your income increases, your tax debt will increase and you may need to fill in a new W-4 form
  • If your spouse starts working

Where can the W-4 Form be obtained?

You can access the W-4 Form from the official web page of the IRS.

How to fill in the W-4 Form?

You can access Form W-4 from the IRS official web page. It is important that you complete this form correctly. The reason for this is that the information you provide on this form will allow the employer to deduct the right amount of federal income tax from your salary. Based on the information you fill in, the amount of federal income tax that must be deducted may either increase or decrease. You don’t have to complete all the steps. There are two steps required from all employees. It is step 1: where you enter personal information such as your name and filing status; and Step 5: where you sign the form. Complete Steps 2 to 4 only if this applies to you. You can also check the Instructions section at the bottom of the form if you wish. The form consists of 5 steps.

Step 1: This section is where you fill in your personal information. You must fill in your name, surname, address, state, ZIP code, Social Security Number (SSN) and filing status. The filing status is divided into three descriptions. It is: single or married with separate filing; married with joint filing; and head of household. Check your filing status because this will determine the deduction and tax rates used to calculate your withholding.

Step 2: Use this section if you have more than one jobs at the same time. Use it if you file together and both you and your spouse is working.

Step 3: If you have dependents or children, you should complete this section. This section provides instructions for determining the amount of credit you can claim for child tax credit and other dependents when you submit your tax return. So you can take advantage of loans by filling out this form.

Step 4: This step is filled in arbitrarily and it is optional. It is used as a notification of other regulations. In this step, you can enter other income sources such as retirement, deductions, or additional deductions.

Step 5: This section is the last step. Sign and complete the form. When you get to this step, check your information and make sure it is  correct.

After completing the form, send it to your employer. This ensures that your employer can withhold the correct federal income tax from your salary.

You may have some questions about Form W-4. For example, you may be wondering when you should increase or decrease your withholding tax.

This applies when there could be situations when you need to increase your taxation or withholding tax. In these cases, if you do not make changes to your withholding tax, you may likely owe additional taxes and have penalties when filing your tax return. Situations where you need to increase your withholding are as follows:

  • If you have more than one job at the same time. Or if both you and your spouse are working (Step 2)
  • If you have income from businesses that are not subject to withholding or from sources other than self-employment (Step 4(a))

There may be situations where you need to reduce your withholding tax. These situations are:

  • If you are eligible for income tax credits such as the child tax credit or credit for other dependents (Step 3)
  • If you are eligible for deductions other than the basic standard deduction: such as materialized deductions; deductions for IRA contributions; or student loan interest deductions. (Step 4(b))

What will happen if you only fill in and sign Step 1 on the form?

If you simply complete Step 1 and sign the form, your Withholding will be calculated based on the standard deduction and tax rates on your filing status. No other arrangements will be made.

Bottom Line

In short, when you start a new job as an employee, they will ask you to fill out the W-4 tax form. This form must be completed in order for your employer to deduct the correct amount of federal income tax from your salary. You can reduce Federal income tax withholding depending on your answers to the questions in the boxes on the form. You provide information such as whether you have dependents, how many jobs you have, and whether you are married. When you start a new job, complete Form W-4 and give it to your employer. If your personal and financial situation changes, you can provide a new Form W-4. Examples of these changes include having a second job, getting married, divorcing, or having a new child.

When you start work as an independent contractor, you must complete Form W-9 and provide it to employers. This form allows you to report your Tax Identification Number. If you are an independent contractor, you pay your taxes yourself; the employer does not deduct taxes on your behalf.

*This document should not be assumed as legal advice. The above information may change, so please make contact with our team of attorneys to confirm it.

References:

https://www.irs.gov/forms-pubs/about-form-w-4

Irmak Kocyildiz
Written by Irmak Kocyildiz

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