Intuit Academy Tax Practice Exam

Form W-4 is primarily used to inform employers of an employee's withholding preferences. This form plays a crucial role in determining how much federal income tax should be withheld from an employee's paycheck. When a new employee starts, they fill out Form W-4, where they can indicate their filing status, number of allowances, and any additional amount they wish to withhold.

This withholding is important because it influences the employee’s tax liability when they file their annual tax return. If too little tax is withheld, the employee may be required to pay a significant amount when they file their return; if too much is withheld, they may receive a refund. Therefore, Form W-4 allows employees to tailor their withholding to better match their tax situation, making it a vital document in tax planning and management.