What is a W-4 form?

The W-4 form is a tax form used in the United States by the Internal Revenue Service (IRS). The form is completed by employees for their employers to determine the correct amount of tax that should be withheld from an employee's wages.

Personal Allowances

If you are not exempt, you should complete the Personal Allowances Worksheet every time you start a new job or each time your financial situation changes. The Personal Allowances Worksheet will help you determine how many allowances you should claim. However, you always have the option of claiming fewer or zero allowances. The more allowances you are claiming, the less tax your employer will withhold from your paycheck.

Exemption From Withholding

You are considered exempt if your total income is less than $950 per calendar year and includes no more than $300 of unearned (interest, dividends, etc.) income. Exempt individuals should only complete lines 1, 2, 3, 4, and 7 of the W-4 Form. In addition, exempt individuals need to sign the form.

Two Earners or Multiple Jobs

If you have more than one job or if you are married and your spouse works, the IRS recommends that you calculate the total number of allowances you are entitled to and claim all allowances on the W-4 for the highest paying job. You should then claim zero allowances on the W-4s of any additional jobs.

Allowances

If you claim more than nine allowances, your employer may be required to notify the IRS. Claiming more than nine allowances is considered a red-flag. However, many high income earners and individuals with many itemized deductions are entitled to claim more than nine allowances.

Allowances vs. Exemptions

The allowances calculated on the W-4 form are different than the exemptions claimed on the Form 1040 filed at the end of the year. People often confuse these terms. Allowances are calculated by using the Personal Allowances Worksheet on the W-4 form. Exemptions are calculated by using the criteria specified on the 1040 Form. You are generally allowed one exemption for yourself, one for your jointly-filing spouse and one for each dependent.

Source:

IRS.gov: W-4 Publication