Type of paper:Â | Case study |
Categories:Â | Tax system |
Pages: | 2 |
Wordcount: | 488 words |
W-4 form is an Internal Revenue Service (IRS) tax form which is filled by a new employee in a company, and its purpose is to allow the employer to withhold the correct amount of wages for every paycheck issued to the worker (Fontinelle, 2019). The money withheld is then redirected to the IRS and the employee is credited with the deduction against their annual tax obligation to the government. This form also demands for tax withholding for any gains from the employment such as commissions and bonuses. To make a wise decision when filling this crucial form, Bob needs to know the allowances and deduction that he may qualify.
Tax allowances refers to the amount of wages which is withheld from an employee's paycheck on a regular basis (Fontinelle, 2019). The more allowances the employee claims, the less the amount of cash is deducted from their salaries. In this case, Bob can claim the following allowances: One for being married, second allowance for his salary being the major household source of income since his spouse`s wages are less than $1500, third for filling the tax return as the head of household and finally, one allowance for each of the three dependents(Fontinelle, 2019). The purpose of withholding allowances is to allow the tax authorities to take into account employees personal circumstances that may need them to assist dependents and, hence, necessitate them to reserve a larger portion of their incomes.
Bob can only claim exempt from withholding of federal income taxes in 2016 if he satisfies the following conditions. First, he must have a right to a refund of all previous` year federal income tax withheld from his salary because he had no tax liability (Tax information center, 2018). Second, for the current year, he must expect a refund of all federal income tax withheld because he purposes to have no tax liability (Tax information center, 2018).
For bob to indicate a no- tax liability status if he qualifies for exemption, he must fill out the Employees withholding Allowance certificate portion of the worksheet like all the other employees. He should, however, not complete the line 5which shows the total number of allowances, and line 6 which asks on additional withholding amounts. Instead, he should write "Exempt" on line 7 of the form (Tax information center, 2018).
In the light of the above, it is apparent that the W-4 IRS tax form is a fundamental document that each employee should take much care when filling. It determines the amount of wages that the employer will withheld for tax purposes. For that reason, each employee should be aware of all the allowances and exemptions that they qualify for to be able to manage their incomes.
References
Fontinelle.A. (2019) The purpose of the IRS W-4 form. Investopedia. Retrieved from https://www.investopedia.com/articles/personal-finance/081214/purpose-irs-w4-form.asp
Tax information center. (2018) W-4 Tax withholding Allowances. H& R block. Retrieved from https://www.hrblock.com/tax-center/filing/personal-tax-planning/tax-withholding-allowances/
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The W-4 Tax Form Essay Sample. (2022, Nov 22). Retrieved from https://speedypaper.net/essays/the-w-4-tax-form
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