A W4 form is a tax form used by employers in the United States to determine the amount of federal income tax to withhold from an employee's paycheck. The employee fills out the form and provides information about their filing status, number of dependents, and other relevant tax information prior to working for the employer. Those who complete a W4 will receive a W2 form for the tax filing year the work was completed.

The more dependents claimed when completing the W4, the more likely the tax filer will owe additional taxes after filing a return, even if the IRS tax withholding estimator is used.

The employer uses this information to calculate the amount of federal income tax to withhold from the employee's paycheck and remit it to the Internal Revenue Service (IRS) on the employee's behalf.

Keep the W4 form up to date as changes in personal circumstances, such as marriage or having a child, can affect the amount of tax to be withheld.

A W-2 form is a document employers who complete the W4 form receive at the end of the year that reports their earnings and tax withholdings, after working for the employer.

You need a W-2 form to file a tax return because it shows the amount of money you earned from your employer during the year and the taxes that were withheld from your paycheck. This information calculates how much you owe in federal and state income taxes or how much of a refund you may be eligible to receive.

When you file your tax return, you must report all of your income, including the income reported on your W-2 form and any other income you may have earned during the year. Failing to report all of your income could result in penalties or interest charges.

W9 and 1099 forms

A W9 form is a tax form businesses use in the United States to request the taxpayer identification number (TIN) of a person or entity they plan to pay. They are completed in advance of compensated tasks by an independent contractor, freelancer, or other non-employee for their services. Those who complete a W9 will receive a 1099 form for the tax filing year the work was completed.

A 1099 form is a tax form used in the United States to report income received by a non-employee, typically a freelancer or independent contractor, from a business or person. The form is received after income is received by the individual who completed form 1099.

There are several types of 1099 forms; each used to report different types of income:

Form 1099-MISC reports miscellaneous income such as payments to independent contractors, rents, or royalties.
Form 1099-INT reports interest income paid to individuals, partnerships, or estates.
Form 1099-DIV is used to report dividends and other distributions paid to shareholders.
Form 1099-R reports distributions from pensions, annuities, retirement plans, or insurance contracts.

The 1099 form is typically issued by the business or person that paid the income and is also sent to the IRS. Recipients of a 1099 form must report the income on their tax return and pay any taxes owed.

2. Can I really receive free tax filing software for free?

In most cases, if your Adjusted Gross Income (AGI) is $73,000 or less (as of 11/10/23), you can receive easy-to-follow tax filing software for free! It is straightforward to use for folks with simple tax returns to file, and it will save you the cost of hiring someone.

IRS Free File

Begin the process of choosing your free tax preparation software by clicking the image below.

IRS Announces Updated Income Tax Brackets

Choose your tax preparer wisely

Choosing a tax preparer is an important decision that can significantly impact your financial well-being. Here are some factors to consider when selecting a tax preparer:

Qualifications

Look for a tax preparer who is qualified and knowledgeable, such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or Tax Attorney. These professionals must pass rigorous exams and maintain continuing education to keep their license current.

Experience

Consider a tax preparer with significant experience in tax preparation. Ask how many years they have been preparing taxes and if they have experience working with clients in similar situations to yours.

Reputation

Research the tax preparer's reputation by reading reviews, checking with professional organizations, and requesting referrals from friends or family members.

Availability

Find out how accessible the tax preparer is during tax season. You want someone available to answer your questions and support you when needed.

Fees

Ask about the tax preparer's fees upfront. Some preparers charge a flat fee, while others charge by the hour or based on the complexity of your tax return. Be sure you understand what you will be charged and what services are included.

Credentials

Be aware that not all tax preparers are created equal. Ensure the person you choose has a valid Preparer Tax Identification Number (PTIN) issued by the IRS.

Communication

Choose a tax preparer who communicates clearly and is willing to explain tax laws and regulations to you in terms you can understand.

By considering these factors, you can find a tax preparer who will help you navigate the complexities of the tax code and minimize your tax liability while ensuring compliance with all relevant regulations.

3. Will my working teen's refund reduce my tax deduction?

In most cases, heck no. That is unless your child is earning so much that they are providing for more than half of their living expenses.

Dependents, such as your children, can receive a full tax refund of any federal withholdings because the standard deduction is so high. And no, in most cases, this has no impact on whoever is claiming that dependent, which is usually a parent. The new standard deductions are below.

4. 2024 tax brackets

Married Filing Joint Returns

Married Filing Separate Returns

5. Is our (marginal) tax bracket the percentage of taxable income we pay in federal income taxes?

No. The percentage of income that you pay in federal income taxes depends on several factors, including your income level, filing status, deductions, and credits. The federal income tax system is progressive, meaning the tax rate increases as income increases.

A marginal tax rate is the rate at which the last dollar of taxable income is taxed. In other words, it is the tax rate that applies to the highest portion of an individual's income. The marginal tax rate is the tax rate that applies to the highest income bracket in which an individual's final dollar is taxed.

Federal income tax is paid on taxable income, not on all earned income.

Important tip: If you are in the 22% marginal tax bracket, 22% of your taxable income is not paid in federal income tax.

6. What is the difference between your income and taxable income?

Your income is the total amount of money you earn in a given period, such as a year, from all sources, including wages, salaries, tips, interest, dividends, rental income, and other sources.

On the other hand, taxable income is the portion of your income subject to federal income tax. It is calculated by subtracting all allowable deductions and exemptions from your gross income. Deductions include expenses like student loan interest, mortgage interest, and charitable contributions.

Generally, taxable income is lower than your total income because not all income is subject to federal income tax.

Personal income tax filers choose the standard deduction or itemizing to lower their taxable income.

7. What is a standard deduction?

The standard deduction is a fixed amount of income you can deduct from your taxable income without itemizing your deductions. It is a tax benefit that is available to all taxpayers who do not choose to itemize their deductions.

The standard deduction amount varies depending on your filing status and other factors, such as age and whether you are blind.

The new standard deduction

Married couples filing jointly for tax year 2024

$29,200, an increase of $1,500 from tax year 2023.

Single taxpayers and married individuals filing separately

$14,600 for 2024, an increase of $750 from 2023

Heads of households

$21,900 for tax year 2024, an increase of $1,100 from 2023

8. What is an itemized deduction?

An itemized deduction is an expense you can deduct from your taxable income to reduce your tax liability, but only if you choose to itemize your deductions on your tax return. Itemized deductions are expenses that the IRS allows taxpayers to subtract from their adjusted gross income (AGI) to arrive at their taxable income.

Some common itemized deductions include:

State and local income, sales, and property taxes
Mortgage interest and real estate taxes
Charitable contributions
Medical and dental expenses
Job-related expenses
Investment and business expenses

9. How do you know whether to take the standard deduction or itemize?

When you file your tax return, you can either take the standard deduction or itemize your deductions. You cannot take the standard and itemized deductions in the same tax year.

According to the IRS, "You should itemize deductions if your allowable itemized deductions are greater than your standard deduction or if you must itemize deductions because you can't use the standard deduction."

For perspective, most taxpayers (87%) choose the standard deduction’s set dollar amount over itemizing.

To itemize your taxes, you would need to gather all of your receipts and other documentation for eligible expenses. You would then add up all of these expenses and subtract them from your adjusted gross income (AGI) to determine your taxable income, which could result in a lower taxable income and a lower tax liability, which could reduce the amount of taxes you owe or increase your tax refund.

10. What are the tax benefits of reducing your AGI by contributing more to your 401K?

Having a low adjusted gross income (AGI) can provide several tax benefits, including:

Eligibility for tax credits

Many tax credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit, are only available to taxpayers with low to moderate incomes. These credits can help reduce the tax owed or provide a refund even if no tax is owed.

Lower tax rate

Taxpayers with lower incomes are often subject to lower tax rates, and this means that a larger portion of their income may be taxed at a lower rate, which can help reduce their overall tax liability.

Reduced or waived tax penalties

Some tax penalties, such as the penalty for failing to have health insurance (the individual mandate penalty), are based on a percentage of income. Taxpayers with lower incomes may qualify for reduced or waived penalties.

Deduction eligibility

Some tax deductions, such as the deduction for medical expenses or charitable contributions, have income limits that may make them more accessible to taxpayers with lower incomes.

Pro Tip

Tax-deferred investments like a 401k reduce the highest dollar of your taxable income. However, if you are already in a low tax bracket, it might make sense to contribute to a Roth 401K instead because the tax break for contributing is minimal.

Simplified examples illustrating the percentage of income paid in federal income taxes

Sam and Jenna are married and their total AGI is $346,000. They decided to file a joint return, and after itemizing their taxable income is $290,000. This puts them in the 24% marginal tax bracket and they would pay 19% of their taxable income in federal income taxes.

Brian and Hope are married. Their AGI is $107,000. After deductions, their total taxable income is $74,000. They decided to file a joint return. Their average tax rate would be 11% and their marginal tax bracket would be 12%.

Jack and Kristen are married and their total AGI is $27,000, which is less than the standard deduction when they file a join return. This means they pay $0 in federal income tax.

Here's how you can estimate the percentage of your income you pay in federal income taxes

You can see how the changes to the tax brackets and a higher standard deduction will impact you using the calculator below. Before entering your financial information, change the tax filing year and status. The changes are favorable for taxpayers, easing the financial pressure on folks.

11. What is the difference between a tax credit and tax deduction?

Understanding the difference between above-the-line tax deductions, below-the-line tax deductions, and tax credits is important to maximize how much money you can keep in your pocket. Comprehending the definition is not enough without understanding how it applies to your tax return. Below is a short tutorial with visuals explaining how they work.

Are tax credits refundable?

Some tax credits are refundable, and some are not. Factors determining what tax credits are fully, partially, or not refundable vary.

To review the most recent tax deductions, which tax credits are available, and which tax credits are refundable, review How Credits and Deductions Work.

12. How do you reduce the chances you will owe additional taxes when filing a tax return?

Here are some ways you can reduce the chance that you will owe additional taxes when filing your tax return:

Adjust your withholding

Your employer withholds taxes from each paycheck based on the number of exemptions you claim on your W-4 form. If you find that you owe taxes at the end of the year, you can adjust your withholding to have more taxes withheld from your paycheck throughout the year. You can do this by filling out a new W-4 form and submitting it to your employer.

Make estimated tax payments

If you are self-employed or receive income from other sources not subject to withholding, you may need to make estimated tax payments throughout the year to avoid owing taxes when you file your return. You can make these payments online or by mail using Form 1040-ES.

Keep accurate records

Keep accurate records of all your income and deductible expenses throughout the year, which will help you accurately calculate your tax liability and ensure that you are not overlooking any deductions or credits you are eligible for.

Your financial life in a spreadsheet, automatically updated daily. Build your budget, now.

Contribute to retirement accounts

Contributions to certain retirement accounts, such as a traditional IRA or 401(k), may be tax-deductible and can reduce your taxable income. By contributing to these accounts, you can lower your tax liability and reduce the chance that you will owe additional taxes when filing.

Take advantage of tax credits

Tax credits are a dollar-for-dollar reduction in your tax liability and can significantly reduce the amount of taxes you owe. Some common tax credits include the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit. Ensure you know all the tax credits you are eligible for and take advantage of them to reduce your tax liability.

Remember, it's important to consult with a tax professional to determine the best course of action for your specific situation.

Trivia

(Answers are at the bottom of the article)

True or False: If you are in the 12% federal income tax bracket, you pay 12% of your income to the federal government

True
False

True or False: If you and your spouse make more money and move from the 24% tax bracket to the 37% tax bracket, you will pay 13% more in federal income taxes.

True
False

Between 40%-50% of U.S. tax filers do not pay any federal income tax, but they do pay taxes in many other ways (e.g., sales tax, payroll tax, property tax)

True
False

If you had a bit of trouble with the three preceding questions, you should consider learning the basics about the U.S. federal income tax system.

13. How does the federal income tax system work?

Philip and Julia Olsen of Two Cents do a marvelous job illustrating basic personal finance concepts. You can find them on PBS. I highly encourage you to watch the short video below if you're not sure how our federal income tax system works. And as far as the answers to the three preceding questions (False, False, True).

BTW: Philip was kind enough to join us on the Modern Husbands Podcast.

Answers to quiz questions

False, false, true.

Tax Season 2025 Income Tax Brackets

The Internal Revenue Service announced the annual inflation adjustments for tax year 2025.

Inflation-Adjusted Tax Brackets for 2025 — Original Source: Wall Street Journal

Of note is that the IRS has raised the standard deduction.

For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000 for 2025, an increase of $400 from 2024.
For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024.
For heads of households, the standard deduction will be $22,500 for tax year 2025, an increase of $600 from the amount for tax year 2024.

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IRS Announces 2025 Income Tax Brackets

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Answers to 13 common tax questions

Table of Contents

1. What is the difference between the W4, W2, W9, and 1099?

W4 and W2 forms