Back to the Classroom: What is W-4 Withholding?
episode
DIY Money | Personal Finance, Budgeting, Debt, Savings, Investing
9 min
3 speakers
2 chapters
transcribed 2 months ago
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Welcome back. Ladies and gentlemen, you're listening to another edition of DIY Money. DIY Money. All right, A. Howard, last one, I pretty much stole the thunder. Let's do some housekeeping odds and ends. Visit us on the web, all the things. Hit us up on the social, all those things. Let's take a brief break for our wonderful sponsors. All right, last episode.
We're like zipping through.
You want me to zip?
We got to zip. We're going to hit it.
I mean, nobody's got time to mess around here. We're not doing housekeeping.
No funny business. I don't care about your life right now. Here's the commercial, and what's the question? Whatever. We got to get out of here.
Regret for time wasted is wasting more time.
So last episode, I stole the thunder. I went on a rant about currency and money and so forth. Dylan was fired. Great question.
Which was awesome.
We could have spent hours on that. But we want to go back to the classroom. It's tax time. And I think this is going to be your podium to talk about withholdings, W-2, W-4, and All the things.
All the W's.
Take it.
That's fair. So I get this question a lot. I just think it's an opportunity to share a little bit more about this form. So let's say you went to file your tax return and lo and behold, you either got a lot of money back or you owed the government a lot of money. In my opinion, both of those are terrible because I hate giving tax-free loans. If you want to hear that rant and hear me on my high horse, we talked about that. a few episodes ago, feel free to go back. I will spare you the rant once again, but today I want to talk a little bit more about, okay, so now what do I do about that? And about this new W-4 form. Um, so the context here is they actually revamped the way this form is structured. So a W-4 form is your employees withholding certificate because certificate sounds fancier of course than form, but it's your way of communicating with your employer.
that you want them to take out more or less tax from your paycheck. So the way this form used to be structured, and I hope you hear my annoyance in my voice, it used to be you basically elected how many allowances you want, and then you basically could tell them, hey, take out an extra $50, and all was peachy. Now they've changed it. I think the goal in changing it was to make it simpler where you don't have to tell them a dollar amount. You just tell them you're withholding and your filing status, and then they figure it out. But in doing so, it's gotten a little bit more complicated. So... In general, the design of the form is that if you have it pulled up or if not, if you're in this boat, feel free to pull it up.
We'll kind of walk through it together. The design of the form is in the first section, you put your information and then you check your filing status. So if you're single, you check single. If you're married, you likely file married filing joint. You check that. And then their goal in redesigning this was that you then just scroll all the way down to the bottom. You sign and you give it to him. And in checking your filing status in the HR system, it will calculate the rate by which you need to withhold. The challenge in this new form is, especially if you're married, if you have multiple sources of income, it doesn't quite work out like that. So let's revisit the tax brackets just briefly. Remember, one of the best analogies I've heard of this was by the Daniel Zolno from back in the day.
And he described the tax brackets like the seven layer dip that you have at parties. So like the first layer might be beans and then cheese and then sour cream and cheese. you know, salsa and whatever else goes in this dip. What's important to know is you don't get to start on the sour cream until you've filled up the beans first, right? So it works as an incremental thing. Logan has a much lamer version because it's not about Mexican food.
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