When an employee starts a new job, the IRS requires he or she fill out a W4 Form. The four-page document allows the employee to calculate the correct withholding allowance -- how much money their employer should withhold from their paychecks to cover federal taxes.
The withholding allowance for an employee corresponds with the number of dependents the employee claims and may change as circumstances change in the employee's personal life. The allowance shifts when someone gets married or divorced, has children, or is no longer claiming a child as a dependent. If an individual does not complete the W4 Form correctly, he or she could end up paying too much into their taxes over the year or, worse, underpaying and ending up with a balance owing, come tax season.
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