Thursday, August 7, 2014

FIRST DAY: What the Hell is a W-4 Form and How Do I Fill It Out?

On your first day of your internship or job, you will be asked to fill out a W-4 tax form. I know, I know...taxes are scary! Trust me, they scare me too. But this form is nothing to be afraid of! Basically the W-4 form lets you decide when you want to pay your taxes. Yes, you’re in control!

You can decide whether you want the government to take too much taxes out of each paycheck and then get a refund on Tax Day, April 15th, or if you want the government to talk too little so you’ll owe them some in April. Basically, the tax score will be settled in April.


Personal Allowances Worksheet

The top half of the form, called the Personal Allowances Worksheet, is just for you. It gives you a hint of suggestions for filling out the bottom of the form. For most interns and entry level peeps (holla!) the only two lines that apply to you are lines A and B. If you have children, are married, or are a bit futher along in your career, check out those other lines too.

Line A

Line A is basically asking if you are paying the bills for rent and food. That is, do you still depend on someone else (a family member or guardian) for your lifestyle. If you are in college and your parents are paying for it, they are likely claiming you as a DEPENDENT. Congrats! You will put down a 0 on this line.

However, if you have just graduated with your first/second job and your own bills, you’re parents are likely not claiming you as a dependent on their taxes anymore. So you will put down 1. Just, maybe check with your parents to make sure.

If you are paying your way through college, you can decide which one to put down: 0 or a 1. I would recommend 0-1 allowances, so 0 would still be acceptable. Don’t worry we’ll get into that more later.

Line B

Line B is less wanky and more simple. You are probably single (marital single, not bf/gf single) and therefore will put down a 1.

If you are married (congrats by the way) and your spouse works, you’ll have to enter a 0 and continue down to the rest of the lines. Sorry!

Allowances- The Biggie

It’s important to realize that the above worksheet is merely a suggestion. You can put down anything you want within reason. But most of you interns or recent college grads will put down between 0-2 allowances. I almost always put down one. Here’s how to decide.

If you put down 1: You will pay an accurate amount of taxes from each paycheck. This mean no big refund at the end of the year, but also an overall less hassle for your parents (if you are dependent) and more money for you in each paycheck. This is what I recommend for interns espically.

If you put down 2: You will underpay your taxes. That means you will get a large paycheck but have to pay back Uncle Sam at the end of the year. If you don’t do your own taxes (i.e. a dependent), this might be a burden for your parents. I would recommend this only to financially sound entry-level job seekers.

If you put down 0: You will get a refund because you have been overpaying for taxes. However, if you are a dependent, your parents will get the money you earned in their tax package. And that’s no fun at all. I wouldn’t really recommend this to anyone, unless you are an entry-level worked who loves getting money back in April. But seriously, don’t you want to spend the money when you earn it? You also won’t get the interest the government earned on your money all year, which isn’t cool!

Part- Year Tip for Recent Grads

If you have just graduated and are about to start a job mid fiscal year (fall/ summer), you can ask your HR team for a “part-year method” on your W-4. That means you won’t get taxed at a  $30,000 salary rate when you are only earning half of your salary this year! More money for you and the universe is in order.

Conclusion

Putting down 1 allowance is best for most interns and those just getting up on their feet. A couple years down the line when you do your own taxes you can reevaluate what is best for your lifestyle.

I hope this helped you understand the relatively simple W-4 form.
This is part of a new section where we help interns and new grads with the lifestyle transition into adulthood. :)


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