I often get questions from educators asking how to teach students about taxes. A student’s introduction to the tax system usually takes the form of the W-4. When a employee begins a new job, it is usually the first form thrust in front of them as a way to get them into the payroll system. This simulation on the IRS website is helpful in walking a first-time employee through the process.
What do employees need to know to complete the form?
- Be sure you know your social security number as you will need to write it on the form.
- The number of allowances and your marital status will be used by your employer to determine the amount your employer will withhold from your paycheck each pay period.
- After you receive a few paychecks, this Withholding Calculator will provide insights as to whether the number of allowances should be adjusted up or down.
- Average taxpayer receives a tax refund of about $2,800 according to TurboTax. They describe how to adjust your allowances to receive more pay throughout the year rather than waiting until April to get your refund.
- Do not get too aggressive by not having enough taxes taken (“underwithholding”) from your paycheck(claiming too many allowances can have this impact) as this could result in penalties and interest charges from the IRS.
Here’s a link to the 2015 form if you want to have students practice completing the W-4 in class (may want to leave out their SSN though).
Next Gen Personal Finance has created a mini-activity to help new employees decipher that first paycheck too: