I have had many a visit from staff members during Q1 regarding W-2 forms.  They file their personal income tax return and they don’t like the final number.  Too much due.  Too much paid in.  Status changes.  Multiple jobs.

While I can’t fill out the W-4 form for them, I make sure my folks understand the the number of deductions they claim is INVERSELY proportional to the amount of tax deducted each payroll.  For example, claiming Single-0 will result in MORE tax taken out than if you are claiming Single-2.  The instructions they provide to the company on a W-4 will dictate how their W-2 will look at the end of the year based on the government’s tax tables.

Part-time employees should be especially mindful.  Depending on the gross payroll, there could be little to no tax deducted.  Again, this is based on the tax tables in a Circular E document.  The completed W-4 and the tax tables create an estimate of what the tax liability could be, but doesn’t dictate how you will actually file the return.

At the end of the year, the part-time employee takes this W-2 and couples it with their full time job W-2, or their spouse’s on a joint return.  They could be unpleasantly surprised by the higher income number but without the additional tax paid into the account.  The W-4 form provides a way to force an additional amount out of each check to cover this gap.

Everyone (you and your staff) needs to understand that one company and it’s paycheck doesn’t know your entire financial situation.  My W-4 with ABC Company doesn’t know if I have another job at XYZ Business, a rental property, win the lottery, etc.  If you are having trouble every year, adjusting your W-4 could be a solution to help to alleviate unpleasant surprises.  Talk to your tax professional when completing your personal return this quarter for 2012.