What is the main purpose of Form W-4?

The main purpose of Form W-4 is to inform the employer of the correct income tax withholding. When an employee starts a new job or their tax situation changes, they fill out the W-4 to provide their employer with information about their filing status, number of allowances, and any additional amount they wish to be withheld from their paycheck. This ensures that the employer withholds the appropriate amount of federal income tax from the employee's wages throughout the year.

The accuracy of the information provided on Form W-4 is crucial, as it directly impacts the amount of tax withheld. If too little is withheld, the employee may owe taxes come filing season, potentially incurring penalties. Conversely, if too much is withheld, the employee might receive a large refund, indicating over-withholding of taxes. Therefore, understanding how to correctly complete Form W-4 is essential for managing tax liabilities effectively.