Your New Job: Filling Out Your W-4 and State Equivalent

Your Guide to State, Local, Federal, Estate + International Taxation

Have you filed your taxes and realized that you received a large refund, or owe a significant amount of money? Before you get upset with your accountant (we’re just the messenger!), it might be worth a look at your withholdings to see if they need to be adjusted.

When you start a new job, you should receive a Form W-4 from your HR department, as well as a state equivalent form if your state has an income tax. The form can seem daunting, but it’s helpful to know a few simple points. The allowances you elect on this form directly relate to how much federal income tax is withheld per paycheck. The IRS has provided a link to help you determine how many allowances to elect, available here.

Each state has methods on their own W-4 forms to determine how much state income tax to withhold. Arizona (Form A-4) makes it easy – there are a few percentages to choose from, and you should select the one that will be closest to your average tax bracket based on household income.

When evaluating your withholding, it’s crucial to look backwards to the past and forwards to the future. If you have, in the past, received a large refund or had to pay in when filing, adjusting your withholdings up or down can result in a refund or tax due that is much more manageable – preferably close to -0-. (Remember, a large refund is just an interest free loan to the government!) Also, if you anticipate a large change in income or a change in filing status, updating your withholding can eliminate surprises during tax time.

You can file a new W-4 or State equivalent at any time if you feel your withholdings are not correct for any reason. HR Departments will not give advice as to how many allowances to select, so if you have questions, it makes sense to ask an accountant to get a clearer picture of your tax situation.

By Brock Yates