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Completing Form W-4

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The Resource Center content, including all videos and other media, is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial or other advice. The advice and information contained in the Resource Center is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation

Summary

Led by Dan from EY, this session simplifies US tax processes and Form W-4. In the US, taxes are withheld for federal income, Social Security, and Medicare. Form W-4 adjusts withholding based on factors like marital status and dependents. Employees use Form W-2 to file taxes annually. Form W-4 updates can be made electronically via ADP. State taxes follow a similar process. Resources like the IRS website aid in accurate completion. Regular updates to Form W-4 ensure proper withholding.

Transcript

Welcome to today's tax information session. I know many of you either recently moved to the United States or will be moving here soon. So congratulations on your new role, and let me be one of the first to welcome you.

My name is Dan with EY, and I'll be leading you through today's session.

EY is a global company that does many things, including tax and auditing, but we also provide financial education to individuals teaching them about money and taxes.

This is certainly an exciting time for you, but it comes with some challenges as well. Including learning about the US tax system.

You will soon be asked to fill out a form W-4, which is an important part of the tax process in the United States.

We will talk about that form W-4 today, but first, we are going to spend time learning more about how taxes work in the United States.

In the US, we have to pay taxes on the income that we earn at a job. This includes the federal income tax that goes to the US federal government.

And we are expected to pay an estimate of that tax every time we get paid. So we call this a pay as you go tax system because you pay taxes as you go through the year and earned income.

Your employer helps you with this each time you get paid, part of your pay is sent to the federal government for you by your employer as an estimate of the amount you might owe.

This form W-4 helps your employer figure out how much to send for you.

But that's just part of the process. These payments that are sent in for you are just an estimate or a guess of what you really owe.

The actual tax you owe depends on things like if you are married, whether you have kids, and some other things. So after the year ends, you have three and a half months to fill out a tax return, which is called a form 1040.

This is where we settle up with the federal government. Your employer sends you a form showing all the money you earned this year and all of those taxes they sent in for you, and you fill out your tax return.

The form then calculates how much tax you really should have paid for last year and you compare it to what was already sent in during the year.

If you had too much sent in, you'll get the extra back, which is called a refund. If you didn't pay enough in, you'll have to pay more with your tax return.

So you can see that the amount your employer sends to the government for you each payday is very important.

And that amount is figured out based on the information you put on this form W-4.

You will fill one of these out right away as a paper form, but you can change it later electronically, and we'll see that today.

Today, we'll spend most of our time learning about how to fill out this form W-4.

But first, let's keep talking about income taxes in the United States because you'll actually see several different taxes taken out of your paycheck and sent to the government.

All of us pay a tax into what's called the Social Security and Medicare systems.

These are programs in the US that provide a monthly check and health care coverage to older Americans as long as they worked and paid these taxes while they were in their working years.

This tax is only charged on what are called wages, or earned income, the money that you earn at a job.

Now we already talked about the federal income tax. This tax is charged on your job income, but also any other income you might have from things like investments, rental income, or other items.

And for the federal income tax, you pay higher tax rates as you earn higher income during the year.

Finally, you might have two other income taxes depending on where you live.

Some states, and even some cities in America also charge a tax on your income. And they use that money to pay for things like roads and bridges, police and fire protection, schools, and other important things.

We'll continue talking about the US tax system here, but there is another video available for you to watch called introduction to US income taxes that you're welcome to watch anytime. To learn more about this process.

So now that we've learned about some of the taxes you'll pay, how do you actually pay for each of these taxes? And how much are they?

The Social Security System tax is exactly 6.2% of your pay, and that is taken out of your paycheck automatically by your employer and sent in to the Social Security program.

But if you make over a certain amount in one year, you get to stop paying that tax for the rest of the calendar year.

The tax for the Medicare system is 1.45% of your pay. It is also taken directly out of your pay and sent in by your employer to the Medicare system.

That tax is charged on all of your job income, and it happens automatically.

Because those taxes are exact amounts, there's usually nothing more you need to do at the end of the year for those taxes. Again, they just happen automatically and the amounts are taken out and sent in for you by your employer.

We talked about the federal income tax where you pay an estimate from each paycheck, and this estimated amount is based on what you put on that form W-4.

And if you live in a state or a city that charges an income tax, your employer will take out that tax from your pay and also send it in. And then you will fill out a tax return with that state or city to see if you paid the right amount and settle up with them.

So let's now finish this tax process that we go through every year for your federal income tax. Remember, during the year, each time you get paid, you pay an estimate of the federal tax you might owe for that year. You'll do the same thing if you live in a state that has an income tax as well.

At the end of the year, your employer will send you a form W-2 in January.

And don't get that confused with the W-4 we'll talk about next. It's form W-2. You get once a year, and it will show you how much pay you earned this year and also how much was taken out for taxes and sent to the federal and state governments for you.

You will use that information to fill out your tax return, which is form 1040.

It asks about your family situation if you are married, single, have kids, etc, and about your income and the taxes you paid.

Then the form helps you calculate your actual tax due for the last year, and then you settle up.

If you pay too much in during the year, you get a refund of the extra. Or if you find you didn't pay enough during the year, you have to pay the difference with your tax return.

This tax return is due by April 15th each year for the prior year.

Okay. Now for the rest of this video, we are going to talk about this form W-4.

Which tells your employer what they need to know about you so they can withhold the right amount of taxes from your pay during the year and send in to the federal government.

This form W-4 asks you about things like how often you get paid, such as every week, every two weeks or twice a month, whether you are married, have kids, have other kinds of income or another job, or if your spouse has income.

There is also a section asking about certain credits and deductions that you might get to take on your tax return.

Finally, you can ask that an extra amount of tax withholding be taken from your paychecks just to make sure you pay enough during the year.

Remember, if you pay too much during the year, you'll get the extra back when you file your tax return.

All of these variables, all of these things that the form asks about influence how much you will ultimately owe on your tax return and how much to be withheld as your estimate each time you get paid.

So here's what the form W-4 actually looks like. It's fairly simple. It has just one page and has five sections on it that we will look at next.

It starts with your personal information, like your name and address, and ends with you adding your signature.

In fact, steps two, three, and four only need to be completed if they apply to you as we'll see next. In fact, if you are not married, don't have any other jobs or income and don't have special credits or deductions on your tax return, you're all done. You just fill in section one, sign your name, and you're done.

So we've looked at the form. We talked about section one. Let's keep working our way through this form W-4. Section two is used if you have multiple jobs and or if your spouse works at a job.

Because taxes are higher for people with higher income, the amounts that get withheld are different for families that have multiple incomes.

This section gives you three choices for providing information.

Some are more accurate, but they take more time. Others are easier, but a little less accurate.

The most accurate way is to go to the website www.irs.gov/w4app.

By the way, IRS stands for the internal revenue service, which is the government agency that collects taxes.

This website asks you questions about all of your family's jobs, and it takes some time to fill out. But it's also a more accurate way to complete section two.

Or you can use a worksheet that is on page three of the instructions for w-4.

But if you wanna make section two very easy, you can just check the box here under option c to say you have multiple jobs. So this option is only for when you have just two total jobs. And it works best when the pay from those two jobs are very similar in their pay amounts.

Section three asks you about your dependents, which usually refers to children that live with you and are under the age of seventeen.

But could also be other individuals who depend on you for support.

You may qualify for special tax reductions when you have dependents, which means you don't need to pay as much estimated tax from your paycheck during the year.

That's why Form W-4 asked about information regarding your dependents.

Finally, section four asks about a few other items.

It asks whether you have other income that is not from a job, This might be investment income, for example.

That income is taxable, but it might not have withholding. So you might need more taxes taken out of your pay to cover the tax on that other income.

It also asks if you have other types of deduction that you can take on your tax return that might reduce your tax.

Meaning you need to have less tax withheld from your pay, but most individuals don't have these other types of deductions.

Finally, you can choose to just have an extra dollar amount withheld from your paycheck for federal tax estimates.

You might do this just to cover taxes on other income you have just to make sure you've paid in enough during the year. Remember, if you pay in too much During the year from your paychecks, you will get that extra back when you fill out your income tax return.

For newly hired individuals, your arrival coordinator will ask you to complete Form W-4 upon your arrival in the United States, and this will be on a paper form W-4.

Sometime after your arrival, you will get access to ADP, which is a third party online payroll software system that houses things like your pay stubs, tax documents, your W-4, and other information.

So after your arrival, you'll be able to make any updates or changes to this Form W-4 anytime needed through that ADP system.

So on the next few slides, we will walk you through how to make a W-4 update in ADP.

Now let me first say that you might not need to update your Form W-4 if you find that the tax amounts you are paying are correct from your paycheck.

But if you do, you will find that form W-4 on the ADP website and that it follows the same steps that are on the paper form.

So we'll go through this section rather quickly because it will look very familiar.

You start by visiting ADP's workforce now website.

Click on the button that says myself and under pay, click on tax withholdings.

On the next screen, click on federal W-4 and then follow the prompt to complete the form.

In fact, at this point, you can even print the Form W-4, which includes some instructions and worksheets that may be helpful for you as you go through the electronic update of your Form w-4.

Then hit next and select your filing status, which means are you married or single for tax purposes.

This next screen has several items to complete. The first asks you about something called an exemption.

Some individuals have an exemption from tax withholding, but this is rare. So unless an exemption applies, which most don't qualify for, you will simply select the button I do not claim exemption from withholding, and then hit next.

From there, complete the information about multiple jobs or if your spouse works. And remember, you have three choices on how to complete that information that we talked about earlier. And then complete the information about your dependents.

From there, we move on to what is section four of the form w-4.

If it applies to you, fill in the information about any other income that's not from a job that you have, any tax deductions that apply to you, or if there's an extra amount of tax withholding you would like taken out of your paycheck.

The website then uses the information you provided to fill in an electronic version of Form w-4.

After you review that updated w-4, just check the box to acknowledge the disclaimer and then hit the done button.

And just note that this w-4 form can be updated at any time as frequently as you need to.

Remember, you'll complete the form w-4 when you're first hired on paper.

Now if you don't have all the information needed to complete the form w-4 thoroughly that first time, you may want to go back and update it when you get access to the ADP site.

You may also want to update that Form w-4 annually. Perhaps after filling out your tax return, especially if you owe tax or you receive a large refund.

Changing to the form w-4 may help you adjust your withholding so your tax return is more accurate.

There's also a number of life events that may cause you to need to update your Form W-4.

And now that we've been through the form, many of these will make sense to you. If you get married or divorced, if your household income changes up or down, you take on another job, you have a child or a dependent moves out of the house. All of those items affect your taxes and your withholdings, and that may mean it's time to update or review your form w-4.

Now our focus has been on federal taxes in this form w-4. But what about those state taxes that we discussed earlier and withholding for those?

We, of course, don't know which state in America you've decided to live in and state tax laws and tax rates vary by state. So we can't go into specifics today.

In general, however, state tax withholding requirements are very similar to what we just talked about for federal taxes.

Your initial withholding is set at your state's default rate. And often, this will be enough for tax planning purposes.

That amount will be taken out of your paycheck automatically by your employer and sent to your state government. And at the end of the year, you will fill out a state income tax return to figure out how much you really owe, show how much you've already paid, and settle up with your state.

If you find that you owe tax or you receive a large tax refund, you might consider updating your state withholding, which you can also do on the ADP site. To adjust the amount of taxes withheld from your pay by your employer for your state and possibly even city income taxes.

And as we close our video today, you do have several resources available to help you when updating your Form w-4.

On the internal revenue service, or IRS website, you can view or print the form w-4 any time because it contains instructions and worksheets that will help you understand and complete the form w-4. The specific website to find that form is shown on the screen.

You could also go to the IRS website and use the IRS tax withholding estimator for more precise guidance on how to complete your Form w-4, particularly if your spouse works or if you have a second job.

For any questions on this process, you should always reach out to your international employee supervisor, or IES.

And be sure to watch that thirty minute webinar introduction to US income taxes, which will be available both live and as a recording for you.

So as we finish today, what should you do next?

First, prepare and gather the information that you need and that we've talked about today about your spouse's income, your tax situation, other income you might have, and be sure to fill out that form w-4 on paper as soon as you receive it.

Use all the resources we shared with you, including the IRS tax withholding estimator, w-4 worksheet in the instructions to help you understand the form.

And when needed, be sure to update your Form W-4 on the ADP website once you gain access to that site.

Again, to learn more about the US tax system, watch the introduction to US taxes webinar.

And be sure to update your Form w-4 when needed and if needed.

We certainly appreciate you watching the webinar today.

And I wanna thank you for viewing this session, spending time with us today. And once again, congratulate you on your new role and welcome you to the US.

Thanks, and have a wonderful day.

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The Resource Center content, including all videos and other media, is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial or other advice. The advice and information contained in the Resource Center is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation