How to properly fill out your W-4 for 2025
The tax season of 2024 has come to an end and now is the time to begin preparing to plan and strategize on how to minimize your taxes owed in 2025. The first step in tax planning and preparing is ensuring your W-4 is filed out correctly. We are currently accepting new clients for 2025 tax planning, tax preparation, and tax strategy, as well as bookkeeping services for small business owners.
This tax season, 2024, I personally saw a lot of individuals have their jobs/employers not withhold the correct amount of federal income tax the entire year. This will likely cause individuals to end up owing the IRS a nice lump sum of money at the end of the year.
Individuals owing due to incorrect withholdings normally occur because of two reasons. First, the individual did not fill out their W-4 correctly when starting their jobs or have changed it recently, leading to being taxed too little or too much. Second, an individual is working 2, 3, or even 4 different W-2 jobs and the jobs do not know about each other (more on this later in this post).
First, to update your W-4, contact your Human Resource team at the company you are employed at or log into your companies database system and navigate to the Human Resource Section.
Once you have your W-4 in front of you, the first step is to update the Step 1 section: Personal Information. This section is your personal information such as your home address, your filing status (Single, Married filed jointly, Married Filed Separately, or head of household).
Next you will head to Step 2: Multiple Jobs or Spouse Works. You will either click “Yes” or “No” for the multiple jobs or spouse works section. This section is very important if you are working multiple jobs. This allows your employer to adjust the amount of income tax they are withholding from you (this is where a lot of individuals end up owing - due to working multiple W-2 jobs and them not being aware of each other).
Step 3: Claim Dependents, is your next section. This section is important for individuals who have children under age 17 (under age 24 if they are a full time student for at least 5 months of the year). Each child under 17, living with you full time, and you are paying for their living expenses, will qualify as a dependent for $2,000 per tax year. Students under age 24 will receive will qualify for a dependent for $500 per year. Both of these dependent elections will allow your employer to proper withhold the correct amount of taxes so there are no year end surprises. See more information regarding qualify independents at the IRS Website.
The most important step in filing out the W-4 is Step 4: Other Adjustments. This is where you will fill in other income you are earning, other deductions you may be receiving, and extra withholdings you want your employer to make (you can tell them to withhold additional taxes at a flat amount). This is where all individuals who have multiple W-2 Jobs, 1099’s, businesses, or other forms of income will need to make some adjustments.
For the other income and deductions section of Step 4, you will simply add those amounts in if you are aware of them. They can be from another W-2 job, 1099, or business. This allow your company to try and withhold the correct amount.
I believe the best method for withholding the correct amount of taxes is to adjust the “Extra Withholding” section directly. This section tells your employer to withhold an additional amount of taxes each pay period. In theory, the additional amount you are withholding, should help offset the other income you are earning at your extra W-2 job, 1099, or business.
Example: You currently have a W-2 income of $70,000. You are also working part time in the evening for an extra $10,000 per year, but the job is considered a 1099 position, meaning taxes are not withheld from it throughout the year. Your W-2 job of $70,000 a year will be taxed at the 22% marginal tax bracket (each additional dollar you make above $48,476 will be taxed at this for 2025). This means, the additional $10,000 will be taxed at 22% during your tax filing at year end, for a total of $2,200 federal tax dollars (this does not include FICA/Medicare taxes). Your 1099 did not withhold taxes throughout the year, so the best way to ensure your federal taxes are being withheld overall is add extra withholding to your W-4. The easiest way to calculate the amount to withhold is by taking the estimated taxes owed from the 1099 ($2,200) and dividing it by the amount of paychecks you receive from you employer, we will use 26 in this example. $2,200/26 = $84.60 of extra withholdings per pay check. $84.60 is the amount you will put in the extra withholding section.
If you or anyone you know has any questions about calculating the extra withholding amounts or completing a W-4 in general, please do not hesitate to reach out. We are currently consulting for tax planning and tax strategy for 2025 and offering FREE reviews of your 2024 tax return to see if a better strategy could have been implemented.
Fred Passelli, CPA, CFE
561-386-3997
Fredpasselli.cpa@gmail.com
