What is a W-4?

Cathy A. Robinson, CPA
Senior Manager
robinson@hwco.com
 

So you are starting a new job.  You will have many forms to fill out the first day including a W-4.  Do you know why you complete a W-4? Not to worry, we are here to help.

What exactly is a W-4?

Simply, it is used by your employer to withhold the proper amount of Federal income tax from your pay.

Why fill out a W-4?

Completing a W-4 accurately can help save you money in two ways. The first way is it helps to prevent you from overpaying your taxes.  Doing this can mean putting more money in your pocket throughout the year. The second way is to ensure you do not owe anything at tax time.

 How do you fill one out?

If you are single, the W-4 is straight forward and easy to complete. For those who are married or have more than one job, the process becomes more complex.  The W-4 includes a series of worksheets to help guide you through this process.  There are also worksheets included for those who have a spouse working as well or for those who have additional employment. 

It is important to keep in mind as well the higher the exemption number claimed, the higher the amount of your net pay. The tradeoff, however,  there will be less withholding deducted from your pay, and you could owe on April 15^th.

 

Remember, ask your tax professional should you have any questions in regards to filling out the W-4 or the tax worksheets attached to it.

 

 

 

 

 

Working Parents: Are you affected by the Nanny Tax?



Cathy A. Robinson, CPA
Senior Manager
robinson@hwco.com
 

If you are a working parent you understand just how hard it can be to find someone who can help take care of your children. While many working parents may place their kids in a daycare facility, others hire people to come into their homes to take care of their children. What some people may not understand is that hiring a nanny means you may have to pay the Nanny Tax, and you have a household employee.

 

 If the annual wages are over $1,900, you are required by the IRS to withhold and pay social security and Medicare taxes.   However, there are some exceptions to those whose wages are subjected to these taxes.  You should check with your tax advisor on the exceptions.

 

Another tax that will be paid is Federal Unemployment Tax (FUTA).  This tax is .06 percent on cash wages and only the first $7,000 in wages is subject to this tax.  FUTA is not a tax that you withhold from the nanny’s pay.  It is a tax that is paid by you.

 

Depending on the state where you live, you will also need to look into filing and paying state unemployment tax and workers’ compensation.  You will need to complete applications for both of these items.

 

It is important to also note that paying the nanny tax is required if you are the employer. This means even if you used an agency to find your nanny, you are still required to pay the tax. If you are the employer,  you will also need to ensure that your nanny or in-house sitter fills out an I-9 form, a W-4 and a state income tax withholding form (if you live in a state with income taxes.)

 

The nanny tax is reported on Schedule H of your Form 1040.