Form W4

Form W-4 is a form completed by employees to determine how much income tax their employers withhold from their paychecks. Ideally, the amount of money withheld by the employer will be the exact amount of federal income tax due by the employee.

If employees have their employer withhold more money than their tax liability, the employees will receive the money back in the form of a refund when they file their income tax return. However, the employees will receive no interest on the money (so they have in essence given the Internal Revenue Service an interest-free loan for the year).

Alternatively, if employees have their employer withhold less money than their tax liability, the employees will have to pay the Internal Revenue Service the additional money owed plus possibly a penalty for having their employers underwithhold the tax due.