This chapter discusses income tax withholding on:
- Salaries and wages,
- Taxable fringe benefits,
- Sick pay,
- Pensions and annuities,
- Gambling winnings,
- Unemployment compensation, and
- Certain federal payments.
This chapter explains in detail the rules for withholding tax from each of these types of income. The discussion of salaries and wages includes an explanation of how to complete Form W-4.
This chapter also covers backup withholding on interest, dividends, and other payments.taxmap/pubs/p505-001.htm#TXMP04107f27
You may want to see:
Publication 919 How Do I Adjust My Tax Withholding? Form (and Instructions) W-4: Employee's Withholding Allowance Certificate W-4P: Withholding Certificate for Pension or Annuity Payments W-4S: Request for Federal Income Tax Withholding From Sick Pay W-4V: Voluntary Withholding Request taxmap/pubs/p505-001.htm#en_us_publink10007182
See chapter 5
of this publication for information about getting these publications and forms.
Income tax is withheld from the pay of most employees. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It also includes reimbursements and other expense allowances paid under a nonaccountable plan. See Supplemental Wages
on page 13, for definitions of accountable and nonaccountable plans.
If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. This is explained under Exemption From Withholding
beginning on page 11.
You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2
Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. taxmap/pubs/p505-001.htm#en_us_publink10007184
If you are a household worker, you can ask your employer to withhold income tax from your pay. A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.
Tax is withheld only if you want it withheld and your employer agrees to withhold it. If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2
Generally, income tax is withheld from your cash wages for work on a farm unless your employer both:
- Pays you cash wages of less than $150 during the year, and
- Has expenditures for agricultural labor totaling less than $2,500 during the year.
When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Payments made after December 31, 2009, to an employee who is on active duty for a period of more than 30 days, will be subject to income tax withholding, but not subject to social security or Medicare taxes. The wages and withholding will be reported on Form W-2, Wage and Tax Statement. taxmap/pubs/p505-001.htm#en_us_publink10007186
The amount of income tax your employer withholds from your regular pay depends on two things.
- The amount you earn in each payroll period.
- The information you give your employer on Form W-4.
Form W-4 includes four types of information that your employer will use to figure your withholding.
- Whether to withhold at the single rate or at the lower married rate.
- How many withholding allowances you claim (each allowance reduces the amount withheld).
- Whether you want an additional amount withheld.
- Whether you are claiming an exemption from withholding in 2010. See Exemption From Withholding on page 11.
You must specify a filing status and a number of withholding allowances on Form W-4. You cannot specify only a dollar amount of withholding.
When you start a new job, you must fill out a Form W-4 and give it to your employer. Your employer should have copies of the form. If you need to change the information later, you must fill out a new form.
If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid overwithholding if your employer agrees to use the part-year method. See Part-Year Method
on page 8 for more information.
If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. However, you can choose to split your withholding allowances between your pension and job in any manner. See Publication 919 for more information.taxmap/pubs/p505-001.htm#en_us_publink10007190
During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances.
Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. See Table 1-1 for examples of personal and financial changes you should consider.
Table 1-1. Personal and Financial Changes
| Factor || Examples |
| Lifestyle change ||Marriage|
Birth or adoption of child
Loss of an exemption
Purchase of a new home
Filing chapter 11 bankruptcy
| Wage income ||You or your spouse start or stop working, or start or stop a second job|
| Change in the amount of taxable income not subject to withholding ||Interest income|
IRA (including certain Roth
| Change in the amount of adjustments to income ||IRA deduction|
Student loan interest
| Change in the amount of itemized deductions or tax credits ||Medical expenses|
Gifts to charity
Dependent care expenses
Child tax credit
Earned income credit
If you change the number of your withholding allowances, you can request that your employer withhold using the cumulative wage method
, explained on page 8.
If changes occur in 2010 that will decrease the number of your withholding allowances for 2011, you must give your employer a new Form W-4 by December 1, 2010. If such a change occurs in December 2010, submit a new Form W-4 within 10 days. See Table 1-1 above for examples of items that may decrease the number of your withholding allowances. taxmap/pubs/p505-001.htm#en_us_publink1000201317
If your spouse died in 2010, you can file a joint return for 2010. Your spouse's death will not affect the number of your withholding allowances until 2011. You will have to change from married to single status for 2011, unless you can file as a qualifying widow or widower because you have a dependent child, or you remarry. For more information, see Married
on this page under Marital Status (Line 3 of Form W-4).
After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. See Publication 919
on page 8, for more information. If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding.
You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax.
When reading the following discussion, you may find it helpful to refer to the filled-in Form W-4
on pages 9 and 10.
There is a lower withholding rate for people who qualify to check the "Married" box on line 3 of Form W-4. Everyone else must have tax withheld at the higher single rate. taxmap/pubs/p505-001.htm#en_us_publink10007197
You must check the "Single" box if any of the following applies.
- You are single. If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single.
- You are married, but neither you nor your spouse is a citizen or resident of the United States.
- You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519.
You qualify to check the "Married" box if any of the following applies.
- You are married and neither you nor your spouse is a nonresident alien. You are considered married for the whole year even if your spouse died during the year.
- You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519.
- You expect to be able to file your return as a qualifying widow or widower. You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information.
Some married people find that they do not have enough tax withheld at the married rate. This can happen, for example, when both spouses work. To avoid this, you can check the "Married, but withhold at higher Single rate" box (even if you qualify for the married rate). Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet
, explained on page 7.
The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim "0" allowances. The number of allowances you can claim depends on the following factors.
- How many exemptions you can take on your tax return.
- Whether you have income from more than one job.
- What deductions, adjustments to income, and credits you expect to have for the year.
- Whether you will file as head of household.
If you are married, it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4.
Form W-4 has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Do not give them to your employer.
Complete only one set of Form W-4 worksheets, no matter how many jobs you have. If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. Complete separate sets of worksheets only if you and your spouse will file separate returns.
If you are not exempt from withholding (see Exemption From Withholding
beginning on page 11), complete the Personal Allowances Worksheet on page 1 of the form. Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments.
Complete all worksheets that apply to your situation. The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year.taxmap/pubs/p505-001.htm#en_us_publink10007202
If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Then split your allowances between the Forms W-4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other(s), or divide them any other way. taxmap/pubs/p505-001.htm#en_us_publink10007203
If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Use only one set of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.
If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. taxmap/pubs/p505-001.htm#en_us_publink10007204
You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances.
The method you use must be based on withholding schedules, the tax rate schedules, and the 2010 Estimated Tax Worksheet in chapter 2. It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4.
You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. You still must give your employer a Form W-4 claiming your withholding allowances. taxmap/pubs/p505-001.htm#en_us_publink10007205
If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U.S. national. It also does not apply if your spouse is a U.S. citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. Special rules apply to residents of South Korea and India. For more information, see Withholding From Compensation in chapter 8 of Publication 519. taxmap/pubs/p505-001.htm#en_us_publink10007206
Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply.
- Only one job.
- Head of household filing status.
- Child and dependent care credit.
- Child tax credit.
You can claim one withholding allowance for each exemption you expect to claim on your tax return. taxmap/pubs/p505-001.htm#en_us_publink10007208
You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. taxmap/pubs/p505-001.htm#en_us_publink10007209
You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Do not claim this allowance if you and your spouse expect to file separate returns. taxmap/pubs/p505-001.htm#en_us_publink10007210
You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. taxmap/pubs/p505-001.htm#en_us_publink10007212
You can claim an additional withholding allowance if any of the following apply for 2010.
- You are single and you have only one job at a time.
- You are married, you have only one job at a time, and your spouse does not work.
- Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less.
If you qualify for this allowance, enter "1" on line B of the worksheet.
Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that:
- Was the main home for all of 2010 of your parent whom you can claim as a dependent, or
- You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent.
For more information, see Publication 501.
If you expect to file as head of household on your 2010 tax return, enter "1" on line E of the worksheet.taxmap/pubs/p505-001.htm#en_us_publink10007214
Enter "1" on line F if you expect to claim a credit for at least $1,800 of qualifying child or dependent care expenses on your 2010 return. Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. For more information, see Publication 503, Child and Dependent Care Expenses.
Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits
beginning on page 6.
If your total income will be less than $61,000 ($90,000 if married), enter "2" on line G for each eligible child. Subtract "1" from that amount if you have three or more eligible children.
If your total income will be between $61,000 and $84,000 ($90,000 and $119,000 if married), enter "1" on line G for each eligible child plus "1" additional if you have six or more eligible children.
An eligible child is any child:
- Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew),
- Who will be under age 17 at the end of 2010,
- Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled,
- Who will not provide over half of his or her own support for 2010,
- Who will not file a joint return, unless the return is filed only as a claim for refund,
- Who will live with you for more than half of 2010,
- Who is a U.S. citizen, U.S. national, or U.S. resident alien, and
- Who will be claimed as a dependent on your return.
If you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test.
Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2009 instructions for Form 1040 or 1040A, line 6c.
For more information about the child tax credit, see the instructions in your Form 1040 or Form 1040A tax package.
Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits
beginning on this page.
Add lines A through G and enter the total on line H. If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4.taxmap/pubs/p505-001.htm#en_us_publink10007217
Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 in the following situations.
- You plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2010 tax return and you want to reduce your withholding.
- You are increasing your standard deduction by certain items allowed for 2010 (see Adjustments to income on this page).
- You have changes to any of the above items and need to see if you should change your withholding.
Use the amount of each item you reasonably can expect to show on your return. However, do not use more than:
- The amount shown for that item on your 2009 return (or your 2008 return if you have not yet filed your 2009 return), plus
- Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2009 or 2010.
Do not include any amount shown on your last tax return that has been disallowed by the IRS.
On June 30, 2009, you bought your first home. On your 2009 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2010 return. You can use $13,200 to figure the number of your withholding allowances for itemized deductions.taxmap/pubs/p505-001.htm#en_us_publink10007219
If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter "0" on line 3 of the worksheet.taxmap/pubs/p505-001.htm#en_us_publink10007220
Enter your estimated total itemized deductions on line 1 of the worksheet.
Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2010. You normally claim these deductions on Schedule A of Form 1040.
- Medical and dental expenses that are more than 7.5% of your 2010 AGI (defined under AGI on this page).
- State and local income or property taxes.
- Deductible home mortgage interest.
- Investment interest up to net investment income.
- Charitable contributions.
- Casualty and theft losses that are more than $100 and 10% of your AGI.
- Fully deductible miscellaneous itemized deductions, including:
- Impairment-related work expenses of persons with disabilities,
- Federal estate tax on income in respect of a decedent,
- Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it,
- Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death,
- Gambling losses up to the amount of gambling winnings reported on your return, and
- Casualty and theft losses from
- Other miscellaneous itemized deductions that are more than 2% of your AGI, including:
- Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies,
- Safe deposit box rental,
- Tax counsel and assistance, and
- Certain fees paid to an IRA trustee or custodian.
For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2010 minus any estimated adjustments to income (discussed below) that you include on line 4 of the Deductions and Adjustments Worksheet.taxmap/pubs/p505-001.htm#en_us_publink10007223
Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet.
You can take the following adjustments to income into account when figuring additional withholding allowances for 2010. These adjustments appear on page 1 of your Form 1040 or 1040A.
- Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b.
- Net operating loss carryovers.
- Certain business expenses of reservists, performing artists, and fee-based government officials.
- Health savings account or medical savings account deduction.
- Certain moving expenses.
- Deduction for one-half of self-employment tax.
- Deduction for contributions to self-employed SEP, and qualified SIMPLE plans.
- Self-employed health insurance deduction.
- Penalty on early withdrawal of savings.
- Alimony paid.
- IRA deduction.
- Student loan interest deduction.
- Jury duty pay given to your employer.
- Reforestation amortization and expenses.
- Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit.
- Repayment of certain supplemental unemployment benefits.
- Contributions to IRC 501(c)(18)(D) pension plans.
- Attorney fees and court costs for certain unlawful discrimination claims.
- Attorney fees and court costs for certain whistleblower awards.
- Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040).
Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet.
If you take the child and dependent care credit into account on line 5, do not use line F. If you take the child tax credit into account on line 5, do not use line G.
In addition to the child and dependent care credit and the child tax credit, you can take into account the following credits.
- Foreign tax credit, except any credit that applies to wages not subject to U.S. income tax withholding because they are subject to income tax withholding by a foreign country. See Publication 514, Foreign Tax Credit for Individuals.
- Credit for the elderly or the disabled. See Publication 524, Credit for the Elderly or the Disabled.
- Education credits. See Publication 970, Tax Benefits for Education.
- Retirement savings contributions credit (saver's credit). See Publication 590.
- Mortgage interest credit. See Publication 530, Tax Information for Homeowners.
- Adoption credit. See the Instructions for Form 8839.
- Credit for prior year minimum tax (both refundable and nonrefundable) if you paid alternative minimum tax in an earlier year. See the Instructions for Form 8801.
- General business credit. See the Instructions for Form 3800.
- Earned income credit, unless you requested advance payment of the credit. See Publication 596.
- Alternative motor vehicle credit (including the plug-in conversion credit). See Form 8910, Part III, and the instructions.
- Alternative fuel vehicle refueling property credit. See Form 8911, Part III, and the instructions.
- Plug-in electric motor vehicle credit. See Form 8834.
- Credit to holders of tax credit bonds. See Form 8912 and instructions.
- Health coverage tax credit. See Form 8885 and instructions.
- Residential energy credits. See Form 5695 and instructions.
- Making work pay credit. See Worksheet 2-6 on page 39.
- Carryforward from prior years of a qualified electric vehicle passive activity credit. See Form 8834 and instructions.
To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-2
on this page.
You are married and expect to file a joint return for 2010. Your combined estimated wages are $68,000. Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660).
Table 1-2. Deductions and Adjustments Worksheet (Form W-4)—Line 5
|a. Married Filing Jointly or Qualifying Widow(er) |
|If combined income from all sources is:|| ||Multiply credits by:|
|$0 – 38,000||10.0|
|$38,001 – 90,000||6.7|
|$90,001 – 160,000||4.0|
|$160,001 – 250,000||3.6|
|$250,001 – 410,000||3.0|
|$410,001 and over||2.8|
|b. Single |
|If combined income from all sources is:|| ||Multiply credits by:|
|$0 – 18,000||10.0|
|$18,001 – 43,000||6.7|
|$43,001 – 95,000||4.0|
|$95,001 – 190,000||3.6|
|$190,001 – 410,000||3.0|
|$410,001 and over||2.8|
|c. Head of Household |
|If combined income from all sources is:|| ||Multiply credits by:|
|$0 – 27,000||10.0|
|$27,001 – 61,000||6.7|
|$61,001 – 135,000||4.0|
|$135,001 – 220,000||3.6|
|$220,001 – 410,000||3.0|
|$410,001 and over||2.8|
|d. Married Filing Separately || |
|If combined income from all sources is:|| ||Multiply credits by:|
|$0 – 19,000||10.0|
|$19,001 – 45,000||6.7|
|$45,001 – 80,000||4.0|
|$80,001 – 125,000||3.6|
|$125,001 – 205,000||3.0|
|$205,001 and over||2.8|
In Table 1-2a, the number corresponding to your combined estimated wages ($38,001 – $90,000) is 6.7. Multiply your total estimated tax credits of $2,660 by 6.7. Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet.taxmap/pubs/p505-001.htm#en_us_publink1000240589
Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income.taxmap/pubs/p505-001.htm#en_us_publink1000240591
If line 7 is less than $3,650, enter "0" on line 8. If line 7 is $3,650 or more, divide it by $3,650, drop any fraction, and enter the result on line 8. taxmap/pubs/p505-001.htm#en_us_publink1000240592
If line 7 is $5,200, $5,200 ÷ $3,650 = 1.42. Drop the fraction (.42) and enter "1" on line 8.taxmap/pubs/p505-001.htm#en_us_publink10007230
Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $18,000 ($32,000 if married).taxmap/pubs/p505-001.htm#en_us_publink10007232
On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). Enter that number on line 2. However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than "3."
Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. If line 1 is more than or equal to line 2, do not use the rest of the worksheet.
If line 1 is less than line 2, enter "0" on Form W-4, line 5. Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding.taxmap/pubs/p505-001.htm#en_us_publink1000240586
If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. The total is the additional withholding needed for the year.taxmap/pubs/p505-001.htm#en_us_publink10007234
Joyce Green works in a bookstore and expects to earn about $13,300. Her husband, John, works full time at the Acme Corporation, where his expected pay is $48,500. They file a joint income tax return and claim exemptions for their two children. Because they file jointly, they use only one set of Form W-4 worksheets to figure the number of withholding allowances. The Greens' worksheets and John's Form W-4 are shown in Figure 1-A
, beginning on page 9.
On this worksheet, John and Joyce claim allowances for themselves and their children by entering "1" on line A, "1" on line C, and "2" on line D. Because both John and Joyce will receive wages of more than $1,500, they are not entitled to the additional withholding allowance on line B. The Greens expect to have child and dependent care expenses of $2,400. They enter "1" on line F of the worksheet. Because they are married, their total income will be less than $90,000, and they have two eligible children, they enter "4" on line G.
They enter their total personal allowances, "9," on line H.taxmap/pubs/p505-001.htm#en_us_publink10007236
Because they plan to itemize deductions and claim adjustments to income, the Greens use this worksheet to see whether they are entitled to additional allowances.
The Greens' estimated itemized deductions total $11,800, which they enter on line 1 of the worksheet. Because they will file a joint return, they enter $11,400 on line 2. They subtract $11,400 from $11,800 and enter the result, $400, on line 3.
The Greens expect to have an adjustment to income of $4,000 for their deductible IRA contributions. They do not expect to have any other adjustments to income. They enter $4,000 on line 4.
They add line 3 and line 4 and enter the total, $4,400, on line 5.
Joyce and John expect to receive $600 in interest and dividend income during the year. They enter $600 on line 6 and subtract line 6 from line 5. They enter the result, $3,800, on line 7. They divide line 7 by $3,650, and drop the fraction to determine one additional allowance. They enter "1" on line 8.
The Greens enter "9" (the number from line H of the Personal Allowances Worksheet) on line 9 and add it to line 8. They enter "10" on line 10.taxmap/pubs/p505-001.htm#en_us_publink10007237
The Greens use this worksheet because they both work and together earn over $25,000. They enter "10" (the number from line 10 of the Deductions and Adjustments Worksheet) on line 1.
Next, they use Table 1 of the worksheet to find the number to enter on line 2. Because they will file a joint return and their expected wages from their lowest paying job are $13,300, they enter "2" on line 2. They subtract line 2 from line 1 and enter "8" on line 3 of the worksheet and on Form W-4, line 5.
John and Joyce Green can take a total of 8 withholding allowances between them. They decide that John will take all 8 allowances on his Form W-4. Joyce, therefore, cannot claim any allowances on hers. She will enter "0" on line 5 of the Form W-4 she gives to her employer.
taxmap/pubs/p505-001.htm#TXMP33acf980Figure 1-A. Illustrated Example--Form W-4 (John and Joyce Green) taxmap/pubs/p505-001.htm#en_us_publink10007239taxmap/pubs/p505-001.htm#en_us_publink10007240
In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.
- You accurately complete all the Form W-4 worksheets that apply to you.
- You give your employer a new Form W-4 when changes occur.
But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.
- You are married and both you and your spouse work.
- You have more than one job at a time.
- You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income.
- You will owe additional amounts with your return, such as self-employment tax.
- Your withholding is based on obsolete Form W-4 information for a substantial part of the year.
- Your earnings are more than $130,000 if you are single or $180,000 if you are married.
- You work only part of the year.
- You change the number of your withholding allowances during the year.
If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. To be eligible for the part-year method, you must meet both of the following requirements.
- You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. You cannot use a fiscal year.
- You must not expect to be employed for more than 245 days during the year. To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. If you are temporarily laid off for 30 days or less, count those days too. If you are laid off for more than 30 days, do not count those days. You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year.
You must ask your employer in writing to use this method. The request must state all three of the following.
- The date of your last day of work for any prior employer during the current calendar year.
- That you do not expect to be employed more than 245 days during the current calendar year.
- That you use the calendar year as your tax year.
If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. You must ask your employer in writing to use this method.
To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc.) since the beginning of the year. taxmap/pubs/p505-001.htm#en_us_publink10007244taxmap/pubs/p505-001.htm#en_us_publink1000239327
To make sure you are getting the right amount of tax withheld, get Publication 919. It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. If you do not have enough tax withheld, you may have to pay estimated tax. See chapter 2
for information about estimated tax.
If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. Go to www.irs.gov
and click on "Withholding Calculator" under "Online Sevices." It can help you determine the correct amount to be withheld any time during the year.
It may be helpful for you to know some of the withholding rules your employer must follow. These rules can affect how to fill out your Form W-4 and how to handle problems that may arise.taxmap/pubs/p505-001.htm#en_us_publink10007246
When you start a new job, your employer should give you a Form W-4 to fill out. Beginning with your first payday, your employer will use the information you give on the form to figure your withholding.
If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. taxmap/pubs/p505-001.htm#en_us_publink10007247
If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. taxmap/pubs/p505-001.htm#en_us_publink10007248
If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Your employer cannot repay any of the tax previously withheld. Instead, claim the full amount withheld when you file your tax return.
However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Your employer can repay the amount that was withheld incorrectly. If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. taxmap/pubs/p505-001.htm#en_us_publink10007249
Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of the Form W-4 to the IRS. There is a penalty for supplying false information on Form W-4. See Penalties
on page 13.
If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a "lock-in letter") to both you and your employer.
The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter.
After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter.
If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise.
At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Your employer must then withhold tax based on this new Form W-4.
Additional information is available on the IRS website at www.irs.gov
. Enter "withholding compliance questions" in the search box.
If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. The exemption applies only to income tax, not to social security or Medicare tax.
You can claim exemption from withholding for 2010 only if both of the following situations apply.
- For 2009 you had a right to a refund of all federal income tax withheld because you had no tax liability.
- For 2010 you expect a refund of all federal income tax withheld because you expect to have no tax liability.
Use Figure 1-B below to help you decide whether you can claim exemption from withholding. Do not use Figure 1-B if you:
- Are 65 or older,
- Are blind,
- Will itemize deductions on your 2010 return,
- Will claim an exemption for a dependent on your 2010 return, or
- Will claim any tax credits on your 2010 return.
These situations are discussed later.
If you are a student, you are not automatically exempt. If you work only part time or during the summer, you may qualify for exemption from withholding.taxmap/pubs/p505-001.htm#en_us_publink10007252
You are a high school student and expect to earn $2,500 from a summer job. You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. You worked last summer and had $375 federal income tax withheld from your pay. The entire $375 was refunded when you filed your 2009 return. Using Figure 1-B, you find that you can claim exemption from withholding.
The facts are the same as in Example 1, except that you also have a savings account and expect to have $350 interest income during the year. Using Figure 1-B, you find that you cannot claim exemption from withholding because your unearned income will be more than $300 and your total income will be more than $950.
You may have to file a tax return, even if you are exempt from withholding. See Publication 501 to see whether you must file a return.
Age 65 or older or blind.
If you are 65 or older or blind, use Worksheet 1-1
or Worksheet 1-2
below to help you decide whether you can claim exemption from withholding. Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2010 return. Instead, see Itemizing deductions or claiming exemptions or credits
| || |
|Worksheet 1-1.||Exemption From Withholding for Persons Age 65 or Older or Blind|
| Use this worksheet only if, for 2009 you had a right to a refund of all federal income tax withheld because you had no tax liability. |
| Caution. This worksheet does not apply if you can be claimed as a dependent. See Worksheet 1-2 instead. |
|1.||Check the boxes below that apply to you.|
| || 65 or older □|| Blind □|
|2.||Check the boxes below that apply to your spouse if you will claim your spouse's exemption on your 2010 return.|
| || 65 or older □|| Blind □|
|3.||Add the number of boxes you checked in |
1 and 2 above. Enter the result
|You can claim exemption from withholding if:|
|Your filing status is:||and the number on |
line 3 above is:
income will be
no more than:
|both 2009 and||3||12,650|
| * Include both spouses' income whether you will file separately or jointly. |
|You cannot claim exemption from withholding if your total income will be more than the amount shown for your filing status.|
| || |
|Worksheet 1-2.||Exemption From Withholding for Dependents Age 65 or Older or Blind|
| Use this worksheet only if, for 2010, you are a dependent and if, for 2009, you had a right to a refund of all federal income tax withheld because you had no tax liability. |
|1.||Enter your expected earned income plus $300||1.|| |
|2.||Minimum amount||2.|| $ 950 |
|3.||Compare lines 1 and 2. Enter the larger amount||3.|| |
|4.||Limit||4.|| 5,700 |
|5.||Compare lines 3 and 4. Enter the smaller amount||5.|| |
|6.||Enter the appropriate amount from the following table||6.|| |
| ||Single|| || || |
| || Either 65 or older or blind||$1,400|| || |
| || Both 65 or older and blind||2,800|| || |
| ||Married filing separately|| || || |
| || Either 65 or older or blind||1,100|| || |
| || Both 65 or older and blind ||2,200|| || |
|7.||Add lines 5 and 6. Enter the result||7.|| |
|8.||Enter your total expected income||8.|| |
|You can claim exemption from withholding if line 7 is equal to or more than line 8. You cannot claim exemption from withholding if line 8 is more than line 7.|taxmap/pubs/p505-001.htm#en_us_publink10007258
If you had no tax liability for 2009, and you will:
- Itemize deductions,
- Claim an exemption for a dependent, or
- Claim a tax credit,
use the 2010 Estimated Tax Worksheet in Form 1040-ES (also see chapter 2
), to figure your 2010 expected tax liability. You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero.
To claim exemption, you must give your employer a Form W-4. Do not complete lines 5 and 6. Enter "Exempt" on line 7.
If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. If you claim exemption in 2010 but you expect to owe income tax for 2011, you must file a new Form W-4 by December 1, 2010. taxmap/pubs/p505-001.htm#en_us_publink10007259
You must give your employer a new Form W-4 by February 15 each year to continue your exemption. taxmap/pubs/p505-001.htm#en_us_publink10007260
Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. taxmap/pubs/p505-001.htm#en_us_publink10007261
Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses.
Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. taxmap/pubs/p505-001.htm#en_us_publink10007262
To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules.
- Your expenses must have a business connection. That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
- You must adequately account to your employer for these expenses within a reasonable period of time.
- You must return any excess reimbursement or allowance within a reasonable period of time.
An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.
The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.
- You receive an advance within 30 days of the time you have an expense.
- You adequately account for your expenses within 60 days after they were paid or incurred.
- You return any excess reimbursement within 120 days after the expense was paid or incurred.
- You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan.
For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.taxmap/pubs/p505-001.htm#en_us_publink10007264
You may have to pay a penalty of $500 if both of the following apply.
- You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
- You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.
There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.
These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. However, see chapter 4
for information on the penalty for underpaying your tax.