Completing Form W-4 and Worksheets

The discussion that follows explains in detail how to fill out Form W-4. It has more detailed information about some topics than the Form W-4 instructions.

In reading this discussion, you may find it helpful to refer to the filled-in Form W-4 in Example 1.3, later in this chapter.

Marital Status (Line 3 of Form W-4)

There is a lower withholding rate for people who can claim married status on line 3 of Form W-4. Everyone else must have tax withheld at the higher single rate. (Also, see Getting the Right Amount of Tax Withheld, later.)

You must claim single status if either of the following applies.

1. You are single. If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single.
2. You are married, but either you or your spouse is neither a citizen nor a resident of the United States. However, if one of you is a citizen or a resident, you can choose to have the other treated as a resident. You can then file a joint return and claim married status on your Form W-4. See Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519, U.S. Tax Guide for Aliens, for more information.

You can claim married status if either of the following applies.

1. You are married and neither you nor your spouse is a nonresident alien. You are considered married for the whole year even if your spouse died during the year.
2. You expect to be able to file your return as a qualifying widow or widower. You usually can use this filing status if your spouse died within the previous 2 years and you provide a home for your dependent child. However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. For more information, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information.

Some married people find that they do not have enough tax withheld at the married rate. This can happen, for example, when both spouses work. To avoid this, you can claim married, but withhold at higher single rate (even if you qualify for the married rate). Also, you can fill out the Two-Earner/Two-Job Worksheet, explained later.

Withholding Allowances (Line 5 of Form W-4)

The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim 0 allowances. The number of allowances you can claim depends on the following factors.

• How many exemptions you can take on your tax return.
• Whether you have income from more than one job.
• What deductions, adjustments to income, and credits you expect to have for the year.
• Whether you will file as head of household.

If you are married, it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4.

Form W-4 worksheets.   Form W-4 has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Do not give them to your employer.

Complete only one set of Form W-4 worksheets, no matter how many jobs you have. If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and must each give a Form W-4 to your employers. Complete separate sets of worksheets only if you and your spouse will file separate returns.

If you are not exempt from withholding (see Exemption From Withholding, later), complete the Personal Allowances Worksheet on page 1 of the form. You should also use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or two-job situations. If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments.

Complete all worksheets that apply to your situation. The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year.

Two jobs.   If you have income from two jobs at the same time, complete only one set of Form W-4 worksheets. Then split your allowances between the Forms W-4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other, or divide them any other way.

Married individuals.   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Use only one set of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.

If you and your spouse expect to file separate returns, figure your allowances separately based on your own individual income, adjustments, deductions, exemptions, and credits.

Alternative method of figuring withholding allowances.   You can take into account most items of income, adjustments to income, deductions, and tax credits in figuring the number of your withholding allowances. Because the Form W-4 worksheets use a simplified method to take these items into account, they do not always result in withholding that is exactly equal to the tax you will owe. You do not have to use the worksheets if you use a more accurate method of figuring the number of withholding allowances.

The method you use must be based on withholding schedules, the tax rate schedules, and the 2002 Estimated Tax Worksheet in chapter 2. It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4.

You can use the number of withholding allowances determined under this alternative method rather than the number determined using the Form W-4 worksheets. You must still give your employer a Form W-4 claiming your withholding allowances.

Employees who are not citizens or residents.   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. This rule does not apply if you are a resident of Canada or Mexico, or if you are a U.S. national. It also does not apply if your spouse is a U.S. citizen or resident and you have chosen to be treated as a resident of the United States. Special rules apply to residents of Korea, Japan, and India. For more information, see Withholding From Compensation in chapter 8 of Publication 519.

Personal Allowances Worksheet

Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances for all of the following that apply.

• Exemptions.
• Only one job.
• Head of household status.
• Child and dependent care credit.
• Child tax credit.

Exemptions (worksheet lines A, C, and D).   You can claim one withholding allowance for each exemption you expect to claim on your tax return.

Self.   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption or the exemption will be reduced or eliminated under the phaseout rule.

Spouse.   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Do not claim this allowance if you and your spouse expect to file separate returns.

Dependents.   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return.

Phaseout.   For 2002, your deduction for personal exemptions is phased out if your adjusted gross income (AGI) falls within the following brackets.

Table 1.1

Single	$137,300	-	$259,800
Married filing jointly or qualifying widow(er)	$206,000	-	$328,500
Married filing separately	$103,000	-	$164,250
Head of household	$171,650	-	$294,150

If you expect your AGI to be more than the highest amount in the above bracket for your filing status, enter 0 on lines A, C, and D. If your AGI will fall within the bracket, use the following worksheet to figure the total allowances for those lines.

Worksheet 1.1

1.	Enter your expected AGI
2.	Enter:
	$137,300 if single
	$206,000 if married filing jointly or qualifying widow(er)
	$103,000 if married filing separately
	$171,650 if head of household
3.	Subtract line 2 from line 1
4.	Divide the amount on line 3 by $125,000 ($62,500 if married filing separately). Enter the result as a decimal
5.	Enter the number of allowances on lines A, C, and D of the Personal Allowances Worksheet without regard to the phaseout rule
6.	Multiply line 4 by line 5. If the result is not a whole number, increase it to the next higher whole number
7.	Subtract line 6 from line 5. This is the maximum number you should enter on lines A, C, and D of the Personal Allowances Worksheet

Only one job (worksheet line B).   You can claim an additional withholding allowance if any of the following apply.

• You are single, and you have only one job at a time.
• You are married, you have only one job at a time, and your spouse does not work.
• Your wages from a second job or your spouse's wages (or the total of both) are $1,000 or less.

If you qualify for this allowance, enter 1 on line B of the worksheet.

Head of household (worksheet line E).   You can file as head of household if you are unmarried and pay more than half the cost of keeping up a home for yourself and your dependent or other qualifying individual. For more information, see Head of Household under Filing Status in Publication 501.

If you expect to file as head of household on your 2002 tax return, enter 1 on line E of the worksheet.

Child and dependent care credit (worksheet line F).   Enter 1 on line F if you expect to claim a credit for at least $1,500 of qualifying child or dependent care expenses on your 2002 return. Generally, qualifying expenses are those you pay for the care of your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. For more information, get Publication 503, Child and Dependent Care Expenses.

Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained later under Tax credits.

Child tax credit (worksheet line G).   If your total income will be between $15,000 and $42,000 ($20,000 and $65,000 if married), enter 1 on line G for each eligible child. Enter 1 additional if you have three to five eligible children or 2 additional if you have six or more eligible children. If your total income will be between $42,000 and $80,000 ($65,000 and $115,000 if married), enter 1 on line G if you have one or two eligible children, enter 2 if you have three eligible children, enter 3 if you have four eligible children, or enter 4 if you have five or more eligible children.

An eligible child is any child:

• For whom you claim an exemption,
• Who will be under age 17 at the end of 2002,
• Who is your son, daughter, stepchild, grandchild, adopted child, or foster child, and
• Who is a U.S. citizen or resident alien.

For more information about the child tax credit, see the instructions in your Form 1040 or Form 1040A tax package.

Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained later under Tax credits.

Total personal allowances (worksheet line H).   Add lines A through G and enter the total on line H. If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4.

Deductions and Adjustments Worksheet

Fill out this worksheet to adjust the number of your withholding allowances for deductions, adjustments to income, and tax credits. Use the amount of each item you can reasonably expect to show on your return. However, do not use more than:

1. The amount shown for that item on your 2001 return (or your 2000 return if you have not yet filed your 2001 return), plus
2. Any additional amount related to a transaction or occurrence (such as the signing of an agreement or the sale of property) that you can prove has happened or will happen during 2001 or 2002.

Do not include any amount shown on your last tax return that has been disallowed by the IRS.

Example 1.1.   On June 30, 2001, you bought your first home. On your 2001 tax return you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Based on your mortgage payment schedule and your real estate tax assessment, you can reasonably expect to claim deductions of $13,200 for those items on your 2002 return. You can use $13,200 to figure the number of your withholding allowances for itemized deductions.

Not itemizing deductions.   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter 0 on line 3 of the worksheet.

Itemized deductions (worksheet line 1).   You can take the following deductions into account when figuring additional withholding allowances for 2002. You normally claim these deductions on Schedule A of Form 1040.

1. Medical and dental expenses that are more than 7.5% of your 2002 adjusted gross income (defined later).
2. State and local income taxes and property taxes.
3. Deductible home mortgage interest.
4. Investment interest up to net investment income.
5. Charitable contributions.
6. Casualty and theft losses that are more than 10% of your adjusted gross income.
7. Fully deductible miscellaneous itemized deductions, including:
   1. Impairment-related work expenses of persons with disabilities,
   2. Federal estate tax on income in respect of a decedent,
   3. Repayment of more than $3,000 of income held under a claim of right (that you included in income in an earlier year because at the time you thought you had an unrestricted right to it),
   4. Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death,
   5. Gambling losses (up to the amount of gambling winnings reported on your return), and
   6. Casualty and theft losses from income-producing property.
8. Other miscellaneous itemized deductions that are more than 2% of your adjusted gross income, including:
   1. Unreimbursed employee business expenses, such as educational expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies,
   2. Safe deposit box rental,
   3. Tax counsel and assistance, and
   4. Fees paid to an IRA custodian.

Adjusted gross income for purposes of the worksheet is your estimated total income for 2002 minus any estimated adjustments to income (discussed later) that you include on line 4 of the worksheet.

Enter your estimated total itemized deductions on line 1 of the worksheet.

Reduction of itemized deductions. For 2002, your total itemized deductions may be reduced if your adjusted gross income (AGI) is more than $137,300 ($68,650 if married filing separately). If you expect your AGI to be more than that amount, use the following worksheet to figure the amount to enter on line 1 of the Deductions and Adjustments Worksheet.

Worksheet 1.2

1.	Enter the estimated total of your itemized deductions
2.	Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses
3.	Subtract line 2 from line 1
	Note. If the amount on line 3 is zero, stop here and enter the amount from line 1 of this worksheet on line 1 of the Deductions and Adjustments Worksheet.
4.	Multiply the amount on line 3 by .80
5.	Enter your expected AGI
6.	Enter $137,300 ($68,650 if married filing separately)
7.	Subtract line 6 from line 5
8.	Multiply the amount on line 7 by .03
9.	Enter the smaller of line 4 or line 8
10.	Subtract line 9 from line 1. Enter the result here and on line 1 of the Deductions and Adjustments Worksheet

Adjustments to income (worksheet line 4).   You can take the following adjustments to income into account when figuring additional withholding allowances for 2002. These adjustments appear on page 1 of your Form 1040 or 1040A.

• Contributions to a traditional IRA.
• Contributions to a retirement plan for self-employed individuals (Keogh plan or self-employed SEP or SIMPLE plan).
• Contributions to a medical savings account.
• Student loan interest deduction.
• Deduction for one-half of self-employment tax.
• Deduction for 70% of self-employed health insurance.
• Penalty on early withdrawal of savings.
• Alimony payments.
• Certain moving expenses.
• Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b(2).
• Net operating loss carryovers.

Enter your estimated total adjustments to income on line 4 of the worksheet.

Tax credits (worksheet line 5).   Although you can take most tax credits into account when figuring withholding allowances, the Form W-4 worksheets use only the child and dependent care credit (line F of the Personal Allowances Worksheet) and the child tax credit (line G). But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet.

If you take the child and dependent care credit into account on line 5, do not use line F of the Personal Allowances Worksheet. If you take the child tax credit into account on line 5, do not use line G.

In addition to the child and dependent care credit and child tax credit, you can take into account the following credits.

• Credit for the elderly or the disabled. See Publication 524, Credit for the Elderly or the Disabled.
• Mortgage interest credit. See Mortgage Interest Credit in Publication 530, Tax Information for First-Time Homeowners.
• Foreign tax credit, except any credit that applies to wages not subject to U.S. income tax withholding because they are subject to income tax withholding by a foreign country. See Publication 514, Foreign Tax Credit for Individuals.
• Qualified electric vehicle credit. See the instructions for Form 8834, Qualified Electric Vehicle Credit.
• Credit for prior year minimum tax if you paid alternative minimum tax in an earlier year. See the instructions for Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts.
• Earned income credit, unless you requested advance payment of the credit. See Publication 596, Earned Income Credit.
• Adoption credit. See Publication 968, Tax Benefits for Adoption.
• General business credit. See Form 3800, General Business Credit.
• Hope credit. See Publication 970, Tax Benefits for Higher Education.
• Lifetime learning credit. See Publication 970, Tax Benefits for Higher Education.

To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from the following tables.

Table 1.2 Credit Table A Married Filing Jointly or Qualifying Widow(er)

If combined estimated wages are:	Multiply credits by:
$0 to 29,000	10.0
29,001 to 64,000	6.7
64,001 to 130,000	3.7
130,001 to 189,000	3.3
189,001 to 324,000	2.9
over 324,000	2.6

Credit Table B Single

If estimated wages are:	Multiply credits by:
$0 to 14,000	10.0
14,001 to 36,000	6.7
36,001 to 75,000	3.7
75,001 to 149,000	3.3
149,001 to 315,000	2.9
over 315,000	2.6

Credit Table C Head of Household

If estimated wages are:	Multiply credits by:
$0 to 23,000	10.0
23,001 to 50,000	6.7
50,001 to 110,000	3.7
110,001 to 170,000	3.3
170,001 to 320,000	2.9
over 320,000	2.6

Credit Table D Married Filing Separately

If estimated wages are:	Multiply credits by:
$0 to 13,000	10.0
13,001 to 30,000	6.7
30,001 to 63,000	3.7
63,001 to 93,000	3.3
93,001 to 160,000	2.9
over 160,000	2.6

Example 1.2.   You are married and expect to file a joint return for 2002. Your combined estimated wages are $65,000. Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700.

In Credit Table A, the number for your combined estimated wages ($64,001 to $130,000) is 3.7. Multiply your total estimated tax credits of $2,660 by 3.7. Add the result, $9,842, to the amount you would otherwise show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Because you choose to account for your child and dependent care credit this way, you do not use line F of the Personal Allowances Worksheet.

Nonwage income (worksheet line 6).   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony received, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income.

If line 6 is more than line 5, you may not have enough income tax withheld from your wages. See Getting the Right Amount of Tax Withheld, later.

Net deductions and adjustments (worksheet line 7).   If line 7 is less than $3,000 enter 0 on line 8. If line 7 is $3,000 or more, divide it by $3,000, drop any fraction, and enter the result on line 8.

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