Taxmap/pubs/p505-001.htm#TXMP132af228 Completing Form W-4   and Worksheets

FW4

When reading the following discussion, you may find it helpful to refer to the filled-in Form W-4 later in this chapter.

Taxmap/pubs/p505-001.htm#TXMP16a5b87b Marital Status   (Line 3 of Form W-4)

Marital Status, IRAs

There is a lower withholding rate for people who can check the "Married" box on line 3 of Form W-4. Everyone else must have tax withheld at the higher single rate. (Also, see Getting the Right Amount of Tax Withheld, later.)

Taxmap/pubs/p505-001.htm#TXMP2dc9cb68 Single.

You must check the "Single" box if either 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 either you or your spouse is neither a citizen nor a resident of the United States. However, if one of you is a citizen or a resident, you can choose to have the other treated as a resident. You can then file a joint return and claim married status on your Form W-4. See Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519, U.S. Tax Guide for Aliens, for more information.

Taxmap/pubs/p505-001.htm#TXMP4b502fd1 Married.

You can check the "Married" box if either 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 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 a home for your dependent child. 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, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information.

Taxmap/pubs/p505-001.htm#TXMP7d0d85f3 Married, but withhold at higher single rate.

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). You may find that more tax is withheld if you fill out the Two-Earner/Two-Job Worksheet, explained later.

Taxmap/pubs/p505-001.htm#TXMP672290b1 Withholding Allowances   (Line 5 of Form W-4)

Withholding Allowances

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.

Taxmap/pubs/p505-001.htm#TXMP61eaecd0 Form W-4 worksheets.

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 must each give a 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, later), complete the Personal Allowances Worksheet on page 1 of the form. You should 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 two-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#TXMP21360d44 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/pubs/p505-001.htm#TXMP1a226279 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/pubs/p505-001.htm#TXMP06941a6e 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.

The method you use must be based on withholding schedules, the tax rate schedules, and the 2005 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 must still give your employer a Form W-4 claiming your withholding allowances.

Taxmap/pubs/p505-001.htm#TXMP707151d8 Employees who are not citizens or residents.

If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. 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. Special rules apply to residents of Korea and India. For more information, see Withholding From Compensation in chapter 8 of Publication 519.

Taxmap/pubs/p505-001.htm#TXMP4086c42a Personal Allowances Worksheet

Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances for all of the following that apply.

• Exemptions.
• Only one job.
• Head of household status.
• Child and dependent care credit.
• Child tax credit.

Taxmap/pubs/p505-001.htm#TXMP531e3997 Exemptions (worksheet lines A, C, and D).

You can claim one withholding allowance for each exemption you expect to claim on your tax return.

Taxmap/pubs/p505-001.htm#TXMP723dd801 Self.

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 or the exemption will be reduced or eliminated under the phaseout rule.

Taxmap/pubs/p505-001.htm#TXMP26e53522 Spouse.

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#TXMP03e01a5c Dependents.

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#TXMP2835ff02 Phaseout.

For 2005, your deduction for personal exemptions is phased out if your adjusted gross income (AGI) falls within the following brackets.

Table 1.1

Single	$145,950	-	$268,450
Married filing jointly or qualifying widow(er)	$218,950	-	$341,450
Married filing separately	$109,475	-	$170,725
Head of household	$182,450	-	$304,950

If you expect your AGI to be more than the highest amount in the above bracket for your filing status, enter "0" on lines A, C, and D. If your AGI will fall within the bracket, use the following worksheet to figure the total allowances for those lines.

Worksheet 1.1

1.	Enter your expected AGI
2.	Enter:
	$145,950 if single
	$218,950 if married filing jointly or qualifying widow(er)
	$109,475 if married filing separately
	$182,450 if head of household
3.	Subtract line 2 from line 1
4.	Divide line 3 by $125,000 ($62,500 if married filing separately). Enter the result as a decimal
5.	Enter the total number of allowances on lines A, C, and D of the Personal Allowances Worksheet without regard to the phaseout rule
6.	Multiply line 4 by line 5. If the result is not a whole number, increase it to the next higher whole number
7.	Subtract line 6 from line 5. The total of the numbers you enter on lines A, C, and D of the Personal Allowances Worksheet cannot be more than this amount

Taxmap/pubs/p505-001.htm#TXMP440c82db Only one job (worksheet line B).

You can claim an additional withholding allowance if any of the following apply.

• 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 $1,000 or less.

Taxmap/pubs/p505-001.htm#TXMP343d3a94 Head of household (worksheet line E).

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 year of your parent whom you can claim as a dependent or that 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 553.

If you expect to file as head of household on your 2005 tax return, enter "1" on line E of the worksheet.

Taxmap/pubs/p505-001.htm#TXMP2f060fa6 Child and dependent care credit (worksheet line F).

Enter "1" on line F if you expect to claim a credit for at least $1,500 of qualifying child or dependent care expenses on your 2005 return. Generally, qualifying expenses are those you pay for the care of your qualifying child who is 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, get Publication 553.

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 later under Tax credits.

Taxmap/pubs/p505-001.htm#TXMP260e48d3 Child tax credit (worksheet line G).

If your total income will be less than $54,000 ($79,000 if married), enter "2" on line G for each eligible child.

If your total income will be between $54,000 and $84,000 ($79,000 and $119,000 if married), enter "1" on line G for each eligible child plus "1" additional if you have four or more eligible children.

An eligible child is any child:

• For whom you claim an exemption,
• Who will be under age 17 at the end of 2005,
• Who is your son, daughter, stepchild, grandchild, adopted child, or foster child, and
• Who is a U.S. citizen or resident alien.

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 later under Tax credits.

Taxmap/pubs/p505-001.htm#TXMP16c4bbec Total personal allowances (worksheet line H).

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#TXMP4d604bf8 Deductions and   Adjustments Worksheet

Deductions and Adjustments Worksheet

Use this worksheet only if you plan to itemize your deductions, claim certain credits, 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 certain tax credits. Use the amount of each item you can reasonably expect to show on your return. However, do not use more than:

1. The amount shown for that item on your 2004 return (or your 2003 return if you have not yet filed your 2004 return), plus
2. Any additional amount related to a transaction or occurrence (such as the signing of an agreement or the sale of property) that you can prove has happened or will happen during 2004 or 2005.

Taxmap/pubs/p505-001.htm#TXMP599002ce
Example 1.1.

On June 30, 2004, you bought your first home. On your 2004 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 can reasonably expect to claim deductions of $13,200 for those items on your 2005 return. You can use $13,200 to figure the number of your withholding allowances for itemized deductions.

Taxmap/pubs/p505-001.htm#TXMP066f94f7 Not itemizing deductions.

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#TXMP20c026cc Itemized deductions (worksheet line 1).

You can take the following deductions into account when figuring additional withholding allowances for 2005. You normally claim these deductions on Schedule A of Form 1040.

1. Medical and dental expenses that are more than 7.5% of your 2005 adjusted gross income (defined later).
2. State and local income or sales taxes and property taxes.
3. Deductible home mortgage interest.
4. Investment interest up to net investment income.
5. Charitable contributions.
6. Casualty and theft losses that are more than 10% of your adjusted gross income.
7. Fully deductible miscellaneous itemized deductions, including:
   1. Impairment-related work expenses of persons with disabilities,
   2. Federal estate tax on income in respect of a decedent,
   3. 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,
   4. Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death,
   5. Gambling losses up to the amount of gambling winnings reported on your return, and
   6. Casualty and theft losses from income-producing property.
8. Other miscellaneous itemized deductions that are more than 2% of your adjusted gross income, including:
   1. Unreimbursed employee business expenses, such as educational expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies,
   2. Safe deposit box rental,
   3. Tax counsel and assistance, and
   4. Fees paid to an IRA custodian.

Adjusted gross income for purposes of the worksheet is your estimated total income for 2005 minus any estimated adjustments to income (discussed later) that you include on line 4 of the worksheet.

Enter your estimated total itemized deductions on line 1 of the worksheet.

For 2005, your total itemized deductions may be reduced if your adjusted gross income (AGI) is more than $145,950 ($72,975 if married filing separately). If you expect your AGI to be more than that amount, use the following worksheet to figure the amount to enter on line 1 of the Deductions and Adjustments Worksheet.

Worksheet 1.2

1.	Enter the estimated total of your itemized deductions
2.	Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses
3.	Subtract line 2 from line 1
	Note. If line 3 is zero, stop here and enter line 1 of this worksheet on line 1 of the Deductions and Adjustments Worksheet .
4.	Multiply line 3 by .80
5.	Enter your expected AGI
6.	Enter $145,950 ($72,975 if married filing separately)
7.	Subtract line 6 from line 5
8.	Multiply line 7 by .03
9.	Enter the smaller of line 4 or line 8
10.	Subtract line 9 from line 1. Enter the result here and on line 1 of the Deductions and Adjustments Worksheet

Taxmap/pubs/p505-001.htm#TXMP3cd80351 Adjustments to income (worksheet line 4).

You can take the following adjustments to income into account when figuring additional withholding allowances for 2005. These adjustments appear on page 1 of your Form 1040 or 1040A.

• Contributions to a traditional IRA.
• Contributions to a retirement plan for self-employed individuals (Keogh plan or self-employed SEP or SIMPLE plan).
• Contributions to a health savings account or medical savings account.
• Tuition and fees deduction.
• Student loan interest deduction.
• Deduction for one-half of self-employment tax.
• Deduction for self-employed health insurance.
• Deduction for educator expenses.
• Penalty on early withdrawal of savings.
• Alimony payments.
• Certain moving expenses.
• 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.
• Performing-arts-related expenses.
• Reserve-related travel costs.
• Jury duty pay given to your employer.
• Deduction for clean-fuel vehicles.

Taxmap/pubs/p505-001.htm#TXMP4000a1e0 Tax credits (worksheet line 5).

Although you can take most tax credits into account when figuring withholding allowances, the Form W-4 worksheets use only the child and dependent care credit (line F of the Personal Allowances Worksheet) 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 of the Personal Allowances Worksheet. 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 child tax credit, you can take into account the following credits.

• Credit for the elderly or the disabled. See Publication 524, Credit for the Elderly or the Disabled.
• Mortgage interest credit. See Mortgage Interest Credit in Publication 530, Tax Information for First-Time Homeowners.
• 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.
• Qualified electric vehicle credit. See the instructions for Form 8834, Qualified Electric Vehicle Credit.
• Credit for prior year minimum tax if you paid alternative minimum tax in an earlier year. See the instructions for Form 8801, Credit for Prior Year Minimum Tax — Individuals, Estates, and Trusts.
• Earned income credit, unless you requested advance payment of the credit. See Publication 596, Earned Income Credit.
• Adoption credit. See Publication 968, Tax Benefits for Adoption.
• General business credit. See Form 3800, General Business Credit.
• Retirement savings contributions credit. See Publication 590, Individual Retirement Arrangements.
• Hope credit. See Publication 970, Tax Benefits for Education.
• Lifetime learning credit. See Publication 970, Tax Benefits for Education.

To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from the following tables.

Table 1.2 Credit Table A Married Filing Jointly or Qualifying Widow(er)

	If combined income from all sources is:		Multiply credits by:
	$0 to 34,000		10.0
	34,001 to 79,000		6.7
	79,001 to 145,000		4.0
	145,001 to 210,000		3.6
	210,001 to 350,000		3.0
	over 350,000		2.8

Credit Table B Single

	If combined income from all sources is:		Multiply credits by:
	$0 to 15,000		10.0
	15,001 to 38,000		6.7
	38,001 to 81,000		4.0
	81,001 to 165,000		3.6
	165,001 to 340,000		3.0
	over 340,000		2.8

Credit Table C Head of Household

	If combined income from all sources is:		Multiply credits by:
	$0 to 24,000		10.0
	24,001 to 53,000		6.7
	53,001 to 120,000		4.0
	120,001 to 185,000		3.6
	185,001 to 345,000		3.0
	over 345,000		2.8

Credit Table D Married Filing Separately

	If combined income from all sources is:		Multiply credits by:
	$0 to 15,000		10.0
	15,001 to 38,000		6.7
	38,001 to 70,000		4.0
	70,001 to 100,000		3.6
	100,001 to 175,000		3.0
	over 175,000		2.8

Taxmap/pubs/p505-001.htm#TXMP72bd510d
Example 1.2.

You are married and expect to file a joint return for 2005. 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.

In Credit Table A, the number for your combined estimated wages ($34,001 to $79,000) is 6.7. Multiply your total estimated tax credits of $2,660 by 6.7. Add the result, $17,822, to the amount you would otherwise 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, you do not use line F of the Personal Allowances Worksheet.

Taxmap/pubs/p505-001.htm#TXMP3ae753c0 Nonwage income (worksheet line 6).

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.

If line 6 is more than line 5, you may not have enough income tax withheld from your wages. See Getting the Right Amount of Tax Withheld, later.

Taxmap/pubs/p505-001.htm#TXMP59598c7a Net deductions and adjustments (worksheet line 7).

If line 7 is less than $3,200 enter "0" on line 8. If line 7 is $3,200 or more, divide it by $3,200, drop any fraction, and enter the result on line 8.

Taxmap/pubs/p505-001.htm#TXMP68af3a49 Two-Earner/Two-Job Worksheet

You should complete this worksheet 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 $35,000 ($25,000 if married).

If you use this worksheet and your earnings are more than $125,000 ($175,000 if you are married), see Publication 919 to check that you are having enough tax withheld.

Taxmap/pubs/p505-001.htm#TXMP3eef2605 Reducing your allowances (worksheet lines 1 – 3).

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 on the Form W-4, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower, your spouse's job). Enter that number on line 2.

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, you should complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding.

Taxmap/pubs/p505-001.htm#TXMP53bf7818 Other amounts owed.

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#TXMP3da437a8 Example 1.3

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 W-4 are shown on the next page.

Taxmap/pubs/p505-001.htm#TXMP0e9d1593

Filled-in Form W–4, page 1   

Taxmap/pubs/p505-001.htm#TXMP460fb687

Filled-in Form W–4, page 2   

Taxmap/pubs/p505-001.htm#TXMP61dbec98 Personal Allowances Worksheet.

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 $1,000, 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 $79,000 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#TXMP358c99ed Deductions and Adjustments Worksheet.

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 $11,300, which they enter on line 1 of the worksheet. Because they will file a joint return, they enter $10,000 on line 2. They subtract $10,000 from $11,300 and enter the result, $1,300, on line 3.

The Greens expect to have an adjustment to income of $3,000 for their deductible IRA contributions. They do not expect to have any other adjustments to income. They enter $3,000 on line 4.

The Greens add line 3 and line 4 and enter the total, $4,300, 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, $3,700, on line 7. They divide line 7 by $3,200, 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#TXMP01bcb44c Two-Earner/Two-Job Worksheet.

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 on the Form W-4 to find the number to enter on line 2 of the worksheet. Because they will file a joint return, their expected wages from the highest paying job are more than $40,000, 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#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.
• Your earnings are more than $125,000 if you are single or $175,000 if you are married.
• You work only part of the year.
• You change the number of your withholding allowances during the year.

Taxmap/pubs/p505-001.htm#TXMP33b91eed Part-Year Method

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 the first day you are on the job for pay and ending 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.

Taxmap/pubs/p505-001.htm#TXMP5165c001 How to apply for the part-year method.

You must ask in writing that your employer 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.

Taxmap/pubs/p505-001.htm#TXMP2e1a03a3 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/pubs/p505-001.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, 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.

Taxmap/pubs/p505-001.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/pubs/p505-001.htm#TXMP0695b87c 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/pubs/p505-001.htm#TXMP3eb95c2e 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/pubs/p505-001.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/pubs/p505-001.htm#TXMP322af649 Sending your Form W-4 to the IRS.

Your employer will usually keep your Form W-4 and use it to figure your withholding. Under normal circumstances, it will not be sent to the IRS. However, your employer must send a copy of your Form W-4 to the IRS for verification in both of the following situations.

• You claim more than 10 withholding allowances.
• You claim exemption from withholding and your wages are expected to usually be more than $200 a week. See Exemption From Withholding, later.

The IRS may ask you for information showing how you figured either the number of allowances you claimed or your eligibility for exemption from withholding. If you choose, you can give this information to your employer to send to the IRS along with your Form W-4.

If the IRS determines that you cannot take all the allowances claimed on your Form W-4, or that you are not exempt as claimed, it will inform both you and your employer and will specify the maximum number of allowances you can claim. The IRS also may ask you to fill out a new Form W-4. However, your employer cannot figure your withholding on the basis of more allowances than the maximum number determined by the IRS.

If you believe you are exempt or can claim more withholding allowances than determined by the IRS, you can complete a new Form W-4, stating on the form, or in a written statement, any circumstances that have changed or any other reasons for your claim. You can send it directly to the IRS or give it to your employer to send to the IRS. 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 to withhold on the basis of the new Form W-4.

There is a penalty for supplying false information on Form W-4. See Penalties, later.

Taxmap/pubs/p505-001.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.

Use Figure A, later in this chapter, to help you decide whether you can claim exemption from withholding. Do not use Figure A if you:

• Are 65 or older.
• Are blind.
• Will itemize deductions on your 2005 return.
• Will claim an exemption for a dependent on your 2005 return.
• Will claim any tax credits on your 2005 return.

These situations are discussed later.

Taxmap/pubs/p505-001.htm#TXMP169c50cd Student.

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#TXMP24e7f68b
Example 1.4.

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 2004 return. Using Figure A, you find that you can claim exemption from withholding.

Taxmap/pubs/p505-001.htm#TXMP3dfcc7ca
Example 1.5.

The facts are the same as in Example 1.4, except that you also have a savings account and expect to have $320 interest income during the year. Using Figure A, you find that you cannot claim exemption from withholding because your unearned income will be more than $250 and your total income will be more than $800.

You may have to file a tax return, even if you are exempt from withholding. See Publication 501, Exemptions, Standard Deduction, and Filing Information, to see whether you must file a return.

Age 65 or older or blind. If you are 65 or older or blind, use one of the following worksheets 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 — instead, see Itemizing deductions or claiming exemptions or credits, following the worksheets.

Worksheet 1.3

Use this worksheet only if, for 2004 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 1.4 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 2005 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:	and your 2005 total income will be no more than:
Single	1	$ 9,450
	2	10,700
Head of	1	$11,750
household	2	13,000
Married filing	1	$ 9,200
separately for	2	10,200
both 2004	3	11,200
and 2005	4	12,200
Other married	1	$17,400*
status	2	18,400*
	3	19,400*
	4	20,400*
*Include both spouses' income whether you will file separately or jointly.
Qualifying	1	$14,200
widow(er)	2	15,200
You cannot claim exemption from withholding if your total income will be more than the amount shown for your filing status.

Worksheet 1.4

Use this worksheet only if, for 2005, you are a dependent and if, for 2004, 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 $250
2.	Minimum amount		$800
3.	Compare lines 1 and 2. Enter the larger amount
4.	Limit		5,000
5.	Compare lines 3 and 4. Enter the smaller amount
6.	Enter the appropriate amount from the following table
Filing Status Amount
	Single
	Either 65 or older or blind	$1,250
	Both 65 or older and blind	2,500
	Married filing separately
	Either 65 or older or blind	1,000
	Both 65 or older and blind	2,000
7.	Add lines 5 and 6. Enter the result
8.	Enter your total expected income
You can claim exemption from withholding if line 7 is equal to or more than line 8. If line 8 is more than line 7, you cannot claim exemption from withholding.

Taxmap/pubs/p505-001.htm#TXMP12f2c614 Itemizing deductions or claiming exemptions or credits.

If you had no tax liability for 2004, and you will either:

• Itemize deductions,
• Claim an exemption for a dependent, or
• Claim a tax credit,

use the 2005 Estimated Tax Worksheet in Form 1040-ES (also see chapter 2), to figure your 2005 expected tax liability. You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero.

Taxmap/pubs/p505-001.htm#TXMP4a40f275 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/pubs/p505-001.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/pubs/p505-001.htm#TXMP47cddcb0

Figure A: Exemption From Withholding Algorithm   

Taxmap/pubs/p505-001.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 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#TXMP595c23f5 Expense allowances.

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#TXMP11fb8386 Accountable plan.

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 the facts and circumstances of your situation, 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.

Taxmap/pubs/p505-001.htm#TXMP0add7737 Nonaccountable plan.

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#TXMP2d78ea22 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 Form W-4 penalty. However, see chapter 4 for information on the underpayment penalty.

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