How Often Can an Employee Change a W4?

by Jerry Anderson, Demand Media
A properly completed W-4 form helps to avoid a tax bill.



Form W-4 is the Employee&amp;rsquo;s Withholding Allowance Certificate required for employees by the Internal Revenue Service (IRS). An employee normally completes this form and submits it to an employer before beginning work. Employers use that information to calculate the amount of federal income tax withholding to deduct from payroll checks. The IRS might require an employer to submit a copy of an employee&amp;#039;s W-4.

The IRS recommends that employees consider submitting a W-4 each year or as often as necessary to reflect current personal and financial circumstances; for example, if a worker recently married or her number of dependents increased, such as when a baby is born. Financial circumstances might require that a worker decrease the number of dependents, which might not reflect actual dependents. For example, an employee&amp;#039;s new spouse might earn a high salary, which puts the couple&amp;#039;s combined earnings into a higher tax bracket. This might require a decrease in the employee&amp;#039;s number of dependents to trigger a higher withholding.

The IRS provides a personal allowance worksheet to assist employees in calculating the number of allowable dependents. Options are available that reflect workers&amp;#039; circumstances, such as marital status, number of dependents and employment on a second job. Employees add all dependent entries to establish a total number of allowable dependents.

An employee&amp;#039;s circumstances might require additional adjustments on his W-4. The deductions and adjustments worksheet helps him determine the need for claiming additional dependents. For example, he might plan to itemize deductions on his federal income tax return. Therefore, he might qualify for claiming additional dependents to reduce his withholding based on estimated home mortgage interest. In addition, the two earner/multiple jobs worksheet helps workers determine the need for additional withholding to avoid a tax bill when filing tax returns.

Throughout the year, the IRS collects employee withholdings from employers. This is like an interest-free loan to the federal government until taxpayers prepare their annual federal income tax returns. Therefore, employees should periodically adjust their withholding to match their expected income tax liability. This maximizes money available to a worker for other purposes, such as maintaining a savings account or investing in a 401K retirement plan.

The IRS allows workers to claim exemption from withholding for 2010 if they meet these requirements: they received a full refund of all federal income tax withheld because they had no income tax liability for the prior year, and they expect the same circumstances for their 2010 tax return. However, they must submit a W-4 to establish their exemption. Furthermore, an employer might require several days to implement an employee&amp;#039;s new W-4.

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