Taxmap/pub17/p17-022.htm#TXMP149145ae
Note.You cannot give your employer a payment to cover withholding for past pay periods or a payment for estimated tax.

Taxmap/pub17/p17-022.htm#TXMP132af228 Completing Form W-4   and Worksheets

FW4

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.

Taxmap/pub17/p17-022.htm#TXMP21360d44 Two jobs.

Two jobs.

If you have income from two jobs 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, or divide them any other way.

Taxmap/pub17/p17-022.htm#TXMP1a226279 Married individuals.

Married individuals.

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/pub17/p17-022.htm#TXMP06941a6e Alternative method of figuring withholding allowances.

Alternative method of figuring withholding allowances.

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. See Alternative method of figuring withholding allowances under Completing Form W-4 and Worksheets in chapter 1 of Publication 505 for more information.

Taxmap/pub17/p17-022.htm#TXMP46b13570 Personal allowances worksheet.

Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances for exemptions and any special allowances that apply.

Taxmap/pub17/p17-022.htm#TXMP0db1f702 Deductions and adjustments worksheet.

Deductions and Adjustments Worksheet

Use this worksheet if you plan to itemize your deductions or claim adjustments to your income and you want to reduce your withholding.

Fill out this worksheet to adjust the number of your withholding allowances for deductions, adjustments to income, and tax credits. The Deductions and Adjustments Worksheet is on page 2 of Form W-4. Chapter 1 of Publication 505 explains this worksheet.

Taxmap/pub17/p17-022.htm#TXMP6eed39a8 Two-earner/two-job worksheet.

You may need to complete this worksheet if you have two jobs or a working spouse. You can also add to the amount, if any, on line 8 of this worksheet, any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment tax.

Taxmap/pub17/p17-022.htm#TXMP62672dc6 Getting the Right Amount   of Tax Withheld

Withholding Tax

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.

Taxmap/pub17/p17-022.htm#TXMP2e1a03a3 Cumulative wage method.

Cumulative wage method

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 in writing that your employer 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/pub17/p17-022.htm#TXMP2bb61061 Publication 919

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 additional withholding, if any, 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, as explained under Estimated Tax, later.

Taxmap/pub17/p17-022.htm#TXMP226e7918 Rules Your Employer   Must Follow

Rules Your Employer Must Follow

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/pub17/p17-022.htm#TXMP0695b87c New Form W-4.

New Form W-4.

When you start a new job, your employer should give you a Form W-4 to fill out. Your employer will use the information you give on the form to figure your withholding beginning with your first payday.

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/pub17/p17-022.htm#TXMP3eb95c2e No Form W-4.

No Form W-4.

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 allowances.

Taxmap/pub17/p17-022.htm#TXMP6049f68c Repaying withheld tax.

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.

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 incorrectly withheld. If you are not repaid, your Form W-2 will reflect the full amount actually withheld.

Taxmap/pub17/p17-022.htm#TXMP58efc7f3 Exemption From Withholding

Withholding Exemption

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 2005 only if both the following situations apply.

• For 2004 you had a right to a refund of all federal income tax withheld because you had no tax liability.
• For 2005 you expect a refund of all federal income tax withheld because you expect to have no tax liability.

Taxmap/pub17/p17-022.htm#TXMP169c50cd Student.

Student

If you are a student, you are not automatically exempt. See chapter 1 to see whether you must file a return. If you work only part time or only during the summer, you may qualify for exemption from withholding.

Taxmap/pub17/p17-022.htm#TXMP3095d9ee Age 65 or older or blind.

Age 65 or older or blind.

If you are 65 or older or blind, use one of the worksheets in chapter 1 of Publication 505, under Exemption From Withholding, 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 2005 return. See Itemizing deductions or claiming exemptions or credits in Publication 505.

Taxmap/pub17/p17-022.htm#TXMP4a40f275 Claiming exemption from withholding.

Claiming exemption from withholding.

To claim exemption, you must give your employer a Form W-4. Enter "exempt" on line 7.

Your employer must send the IRS a copy of your Form W–4 if you claim exemption from withholding and your pay is expected to usually be more than $200 a week. If it turns out that you do not qualify for exemption, the IRS will send both you and your employer a written notice.

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 2005, but you expect to owe income tax for 2006, you must file a new Form W-4 by December 1, 2005.

Taxmap/pub17/p17-022.htm#TXMP0983e103 An exemption is good for only one year.

You must give your employer a new Form W-4 by February 15 each year to continue your exemption.

Taxmap/pub17/p17-022.htm#TXMP2d847954 Supplemental Wages

Wage, Supplemental

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. If these payments are identified separately from your regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate.

Taxmap/pub17/p17-022.htm#TXMP595c23f5 Expense allowances.

Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages.

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.

For more information about accountable and nonaccountable expense allowance plans, see Reimbursements in chapter 28.

Taxmap/pub17/p17-022.htm#TXMP3c9c5630 Penalties

Penalty

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 one 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, 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 W-4 penalty.

Taxmap/pub17/p17-022.htm#TXMP2ab28ca5 Tips

Tip

The tips you receive while working on your job are considered part of your pay. You must include your tips on your tax return on the same line as your regular pay. However, tax is not withheld directly from tip income, as it is from your regular pay. Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay.

See chapter 7 for information on reporting your tips to your employer. For more information on the withholding rules for tip income, see Publication 531, Reporting Tip Income.

Taxmap/pub17/p17-022.htm#TXMP683b3beb How employer figures amount to withhold.

How employer figures amount to withhold.

The tips you report to your employer are counted as part of your income for the month you report them. Your employer can figure your withholding in either of two ways.

• By withholding at the regular rate on the sum of your pay plus your reported tips.
• By withholding at the regular rate on your pay plus a percentage of your reported tips.

Taxmap/pub17/p17-022.htm#TXMP1be1a7fa Not enough pay to cover taxes.

If your regular pay is not enough for your employer to withhold all the tax (including income tax, social security tax, Medicare tax, or railroad retirement tax) due on your pay plus your tips, you can give your employer money to cover the shortage. See Giving your employer money for taxes in chapter 7.

Taxmap/pub17/p17-022.htm#TXMP4eeda87c Allocated tips.

Allocated Tips

Your employer should not withhold income tax, social security tax, Medicare tax, or railroad retirement tax on any allocated tips. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax. See Allocated Tips in chapter 7 for more information.

Taxmap/pub17/p17-022.htm#TXMP0ea82982 Taxable Fringe Benefits

Fringe Benefits, Taxable

The value of certain fringe benefits you receive from your employer is considered part of your pay. Your employer generally must withhold income tax on these benefits from your regular pay.

For information on fringe benefits, see Fringe Benefits under Employee Compensation in chapter 6.

Your employer can choose not to withhold income tax on the value of your personal use of an employer-provided car, truck, or other highway motor vehicle. Your employer must notify you if this choice is made.

For more information on withholding on taxable fringe benefits, see chapter 1 of Publication 505.

Taxmap/pub17/p17-022.htm#TXMP07cf9944 Sick Pay

Sick Pay

Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. To qualify as sick pay, it must be paid under a plan to which your employer is a party.

If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate.

However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. See Form W-4S, later.

If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable.

Taxmap/pub17/p17-022.htm#TXMP5bfa05c8 Union agreements.

If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. See your union representative or your employer for more information.

Taxmap/pub17/p17-022.htm#TXMP653b211f Form W-4S.

FW4S

If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Its instructions contain a worksheet you can use to figure the amount you want withheld. They also explain restrictions that may apply.

Give the completed form to the payer of your sick pay. The payer must withhold according to your directions on the form.

If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. If you do not pay enough estimated tax or have enough income tax withheld, you may have to pay a penalty.

Taxmap/pub17/p17-022.htm#TXMP49d222f6 Pensions and Annuities

Pensions and Annuities

Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:

• A traditional individual retirement arrangement (IRA),
• A life insurance company under an endowment, annuity, or life insurance contract,
• A pension, annuity, or profit-sharing plan,
• A stock bonus plan, and
• Any other plan that defers the time you receive compensation.

The amount withheld depends on whether you receive payments spread out over more than one year (periodic payments), within one year (nonperiodic payments), or as an eligible rollover distribution (ERD). You cannot choose not to have income tax withheld from an ERD.

Taxmap/pub17/p17-022.htm#TXMP65687d53 More information.

For more information on taxation of annuities and distributions (including eligible rollover distributions) from qualified retirement plans, see chapter 11. For information on IRAs, see chapter 18. For more information on withholding on pensions and annuities, including a discussion of Form W-4P, see Pensions and Annuities in chapter 1 of Publication 505.

Taxmap/pub17/p17-022.htm#TXMP6f2f42a4 Gambling Winnings

Winnings

Income tax is withheld from certain kinds of gambling winnings at a flat rate.

Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding.

• Any sweepstakes, wagering pool, or lottery.
• Any other wager, if the proceeds are at least 300 times the amount of the bet.

It does not matter whether your winnings are paid in cash, in property, or as an annuity. Winnings not paid in cash are taken into account at their fair market value.

Gambling winnings from bingo, keno, and slot machines generally are not subject to income tax withholding. However, you may need to provide the payer with a social security number to avoid withholding. See Backup withholding on gambling winnings in Publication 505. If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. See Estimated Tax, later.

If you do not pay enough tax through withholding or estimated tax payments, you may have to pay a penalty. See Underpayment Penalty, later.

Taxmap/pub17/p17-022.htm#TXMP1de88e47 Form W-2G.

If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. Report the tax withheld on line 63 of Form 1040.

Taxmap/pub17/p17-022.htm#TXMP07427cc8 Unemployment Compensation

Unemployment Benefits

You can choose to have income tax withheld from unemployment compensation. To make this choice, you will have to fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.

Unemployment compensation is taxable. So, if you do not have income tax withheld, you may have to pay estimated tax. See Estimated Tax, later.

If you do not pay enough tax either through withholding or estimated tax, you may have to pay a penalty. See Underpayment Penalty, later, for information.

Taxmap/pub17/p17-022.htm#TXMP22516054 Federal Payments

Federal Payments

You can choose to have income tax withheld from certain federal payments you receive. These payments are:

1. Social security benefits,
2. Tier 1 railroad retirement benefits,
3. Commodity credit loans you choose to include in your gross income, and
4. Payments under the Agricultural Act of 1949 (7 U.S.C. 1421 et. seq.), or title II of the Disaster Assistance Act of 1988, as amended, that are treated as insurance proceeds and that you receive because:
   1. Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or
   2. You were unable to plant crops because of a natural disaster described in (a).

To make this choice, you will have to fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.

If you do not choose to have income tax withheld, you may have to pay estimated tax. See Estimated Tax, later.

If you do not pay enough tax either through withholding or estimated tax, you may have to pay a penalty. See Underpayment Penalty, later, for information.

Taxmap/pub17/p17-022.htm#TXMP7bc4563d More information.

For more information about the tax treatment of social security and railroad retirement benefits, see chapter 12. Get Publication 225, Farmer's Tax Guide, for information about the tax treatment of commodity credit loans or crop disaster payments.

Taxmap/pub17/p17-022.htm#TXMP78e136fb Backup Withholding

Backup Withholding

Banks and other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. The information return shows how much you were paid during the year. It also includes your name and taxpayer identification number (TIN). TINs are explained in chapter 1.

These payments generally are not subject to withholding. However, "backup" withholding is required in certain situations. Backup withholding can apply to most kinds of payments that are reported on Form 1099.

The payer must withhold at a flat rate in the following situations.

• You do not give the payer your TIN in the required manner.
• The IRS notifies the payer that the TIN you gave is incorrect.
• You are required, but fail, to certify that you are not subject to backup withholding.
• The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 120-day period.

See Backup Withholding in chapter 1 of Publication 505 for more information.

Taxmap/pub17/p17-022.htm#TXMP69b2cad2 Penalties.

Penalty

There are civil and criminal penalties for giving false information to avoid backup withholding. The civil penalty is $500. The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both.

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