If employed, your employer withholds income tax from your paycheck and pays it to the IRS and state taxing authority in your name. Tax liabilities and withholding amounts are reconciled during tax season, resulting in either a tax refund or a tax payment due. A disconnect between your tax return and your income tax withholding elections can result in larger than expected tax liabilities or smaller than necessary net paychecks. Therefore, it is vital to revisit your withholding elections upon the occurrence of a life event (birth, death, marriage, divorce, etc.) or when tax laws change.
If your income stream does not allow for adequate income tax withholding (for example, self-employed or significant investment income), you may have to make estimated tax payments throughout the tax year. Click here for more information on estimated tax payments.
The goal is to make elections that result in a withholding rate (percentage of withholding compared to taxable income) that closely reflects your effective tax rate (percentage of actual tax assessed against every dollar of income).
Federal Withholding Forms – W-4, W-4P and the W-4V
The proper federal withholding election form depends on the related income. Federal Form W-4 relates to compensation, Federal Form W-4P relates to pensions or annuity payments, and Federal Form W-4V relates to social security income. Each state may offer their own withholding election forms.
Pay special attention to the filing status and dependent or exemption categories when completing withholding elections forms. However, it is not uncommon for the selections in these categories to not match your actual situation; especially when there is a significant difference between spousal earnings or there are dependent children. For example, the higher earning spouse may select the Single filing status (although married) so that more income tax is withheld from their income to better match the household’s combined tax liability.
Employee withholding forms (W-4):
Pension or Annuity withholding forms (W-4P):
Social Security withholding form (W-4V):
Wisconsin – N/A, Social Security is tax free in Wisconsin.