W4 Explained (For Freelance Cast And Crew)
For decades, crew members have asked me this question - Should I fill out single and nine or married and nine? Truth is, I can't answer that question. That's a question that has to come from each individual and their tax preparer.
With a little bit of knowledge, however, each crew member can determine the appropriate way to fill out his or her W-4. This blog serves as a guide to help crew members answer this question.
What is Form W-4 ?
The W-4 essentially tells your employer how much tax should be withheld from your gross pay so that your withholding tax gets sent to the state and the federal authorities.
Filling out the W-4
When you fill out single and zero, you will have the maximum taken out of your pay based on your weekly earnings. So, if you make $2,000 a week, for example, the tax table assumes you are making $104,000 a year. The IRS tables are going to calculate your tax obligation based on $104,000. If you work 50% of the year, however, you're only going to earn $52,000, but you are going to pay taxes into the system based on $104,000 gross because the tax tables used to estimate your withholding each week assume we all work 52 weeks per year. We ALL know that RARELY happens in film production.
To offset this problem, you can increase your number of dependents and/or change your single or married status. There is nothing illegal about saying you're married and have nine dependents when you are a single man or a single woman. It’s not illegal; you're not committing fraud. Rather, you are manipulating the tax table to withhold the proper amount of money for your estimated income for that particular year.
The average crew member in the US works about 32 weeks a year. Some may work 52 weeks a year, but they are the lucky few. If you find yourself working every week the calculation is simple, you shouldn't be adjusting your W-4. Instead, you should be claiming single or married (based on your actual situation) and one, or however many dependents you have.
The number of dependents is based on how many people you can claim on your tax return. So you can always claim one, that’s yourself. You can also claim your children and your spouse as dependents as well.
To keep things simple for this discussion, we are going to stick to the calculation for a single person and we’ll be basing your income on what you currently make or your average earnings.
If you've never worked in freelance film production before, simply fill out single and one. You'll have an accurate tax withholding taken out for your earnings, and you're going to see a pattern over the next year or two to make an informed decision about how to complete a W-4 later in your career. You can take out less, by filing married and nine (when you should be filling out single and one), but at the end of the year you're going to owe the Fed and the state some tax money.
If you do owe the Fed and state money, and you haven't withheld enough during the year, you can and likely will be fined. The fines aren't huge but who wants to give the government more money than they're already getting, right? You're not going to go to jail. You're not committing fraud so you're not going to get in any kind of trouble.
The only thing that will happen is that you will pay more money in taxes and fines than if you had accurately calculated your weekly withholding.
On the flip side of that, you can file single and zero, and have the maximum taken out of your pay and at the end of the year you'll get money back. In this case you are getting a refund - YOUR money is returned to you. That doesn't mean that you paid no taxes. It simply means you overpaid and you don't have as big a tax obligation as you have paid into the system on a weekly basis.
Exempts aren’t accepted
There's no such thing as filing exempt. It doesn't exist. Most employers in production will not allow exempt so if you check that box, your employer will say, "no, you're single and zero." They will likely take out the maximum because your employer is obligated to withhold tax for the state and federal government. If they don't withhold accurately and you sue them, then it is the employer's obligation to make that payment to the state and fed on your behalf.
If your employer does not do this, and they’ve paid you out already, they won't go back and claw any money back. As a result, they’ll have to pay your withholding; what the employer should have paid to the state and fed on your behalf, and a fine.
Therefore, the employer will likely not accept exempt. There are some cases where it is allowed, but such cases are rare. For example, if you have not paid taxes in the previous year - and that means you pay nothing, zero, into the state or fed in the previous calendar year - you can possibly be exempt. That also means that you don't have a tax obligation in the year going forward.
If you are working, however, there are few scenarios where you will be exempt from tax at the end of the year. If you make below the poverty level, you could possibly have no tax obligation but it's pretty uncommon and I've never seen it in Hollywood. The lowest paid people in production such as the PA’s make around $500 to $700 per week. That calculates out to $30,000 a year which is far above the line where you pay zero for your annual tax obligation.
So don't make the argument that you're exempt because you're not - you owe taxes. As my dad said when I was 14 or 15 and I got my first paycheck, I said (with youthful outrage), “Where did all my money go? They took taxes out.” My Dad looked at me and said, “kid, there are two people who pay taxes in America. You and the guy that looks back at you in the mirror when you shave every morning.” And that is the reality of the tax situation in the US. Get used to it!
How to use your W-4 to accurately estimate your tax
If you work in Hollywood and you are wondering how to use the W-4 to accurately estimate your tax obligations so that you don't overpay into the system on a weekly basis, then you can use your marital status, dependents (allowances), and estimated income to calculate what your accurate withholding should be.
I recommend that you set your marital status & dependents on a W-4 in January of each year and then, in November, using a net pay calculator (taking your last pay stubs from all the payroll services - not just one) adjust your W-4 again to make sure you have not over or under paid your taxes. You will be estimating your tax obligation and then monitoring your pay stubs to make sure that you are contributing correctly each month, quarter or year.
If you haven't paid in enough, simply adjust your marital and dependent status to make sure you pay more into the system so that, at the end of the year you will have paid in enough and vice-versa, have not overpaid. Alternatively, you can write a check the state and federal tax systems. They will gladly take your money. You just need fill out a form put your social security number on the check and indicate that it’s federal withholding. The same can be done with the state.
To calculate what you are supposed to pay into the system on your W-4, do your estimate based on what you made last year and then compare that at the end of the year to make sure it's correct and that you are in fact paying in enough.
If you have not paid enough, as I said earlier, simply set your W-4 to single and zero on your next show or the one you are on. If you don't know what your year is going to look like and you're just guessing, then you can simply assume that the average employee working in freelance film production works 32 out of 52 weeks a year. Then, take a look at your gross income and using a net pay calculator (google search), calculate what your total earnings and tax obligation will be. We have a video to go through that for you.
The Detail using a $2,000 per week example
Using $2,000 per week rate, you can work backwards from what you think you're going to make, based on the number of weeks you will find work, and what taxes should be paid. Then you need to key your gross compensation into Paycheckcity.com (which is the net pay calculator we use) - choose your state, marital status (single or married) and your dependents (ie: one for a single person). The net pay calculator will display the total amount of state and federal taxes you will have to pay by December 31 for the year that you are estimating. We can now work backward from this information to give us a rough estimate of how we should fill out a W-4.
Now the granular detail of how we do this: let’s say you make $2,000 a week and you work on average 32 weeks a year. 32 weeks times $2,000 is $64,000 so using the example of $2,000 a week, on 52 weeks a year; the tax tables think you earn $104,000. That, $104K, is what the show's tax table will pick up as your gross earnings for the year.
Your federal obligation at $104,000 is $17,214 and your state obligation is $7,169. However, if you only worked 32 weeks a year, which is the average in freelance film production, you would earn $64,000 and your tax obligation to the Fed is only $8,178 - which is nearly a $10,000 difference. The state difference is $3,076 versus $7,100 - almost $4,000.
What I do in this situation is calculate what I should be using for actual marital status and number of dependents. I simply use a net pay calculator to look at the difference in tax obligation between $64,000 and $104,000 by hunting and pecking until I get a number I can live with. In other words, I test different marital statuses and dependents against my actual earnings and don't let the tax table think I earn more than I do based on one week's gross. We could walk you through the IRS Worksheet or give you a fucking formula to calculate tax obligation, but why make this process over complicated. The IRS Worksheet is pure SHIT and the formulas are worse!
First, go to a net pay calculator and calculate what your total tax obligation for the Fed and state should be at $64,000. In this example, it’ll be $8,178 for the Fed and $3,076 for the state (write them down). Now that you know what your obligation is, simply key in $104,000 as your gross compensation because you’re being paid $2,000 a week (this is counter intuitive, but bear with me). We are assuming that the show is going to base your gross or annual earnings on $104,000.
The tax rate at $104,000 and $64,000 are dramatically different. The difference is almost 50% higher for the person making $104,000 each year. Based on our previous calculation at $64,000 we're going to run that same 104K calculation on married and two and see what we get to. We are looking to see if the tax removed from each week's check is closer to our real tax obligation at 64K.
When we run the same $104,000 on married and two, we get a federal tax obligation of $10,153 and state at $4,328. We're not quite there yet but we're closer. We're at $10,000 versus $8,000 on the Fed and $4,000 versus $3,000 on the state. So we're going to run it as married and four this time. At this point, we're just testing - running the tax table in a net pay calculator, on a gross income of $104,000 to try to figure out how we can get as close as we can to our actual tax due based on an income of $64,000.
So, when we run it again as married and four, we get a federal obligation of $8,660 and a state of $4,330. The federal number is really close since the actual federal obligation at $64,000 is $8,200 (in round numbers). So we're off by $400. We could plug it in again at married and five and see what happens or we can just leave it at married and four. Let's run it at married and five and see what we get.
At married and five, we get $8,156 on the Fed and $4,331 for state. The state and fed tables will be slightly out of sync with each other so as you increase your dependence it doesn't reduce your tax obligation at the same percentage or proportion for state as it does on the federal, but we will get as close as we can without over or under paying.
Married and five does not give us the exact withholding amount, but we have to pick a number so, in this particular case we will overpay a little bit by $500. We will file married and four and pay $8,660 even though our federal obligation is $8,178 for a $64,000 gross income. In this example, we should get a $500 tax return at the end of the year if we earn $64,000. The state tax obligation is $3,076, but if you pay in $4,330, we will probably get another $700 in return (assuming $64,000 and living in California).
To run this calculation on your own situation, change the 104K with your weekly rate times 52 and 64K with your rate times the number of weeks you think you will work.
So, if I were filling out my W-4, and I am making $2,000 a week working an average of 32 weeks a year, I will file my W-4 as married and four dependents. Based on my gross pay of $64,000, filing married and four, I will probably get back around $1,000 to $1,500 on my next tax return.
By doing this, I haven't overpaid substantially (by around $12,000) and I don't want to overpay by that much unless I'm trying to save money and it's a forced savings program that I don't miss in my weekly pay. My general theory is - why don't you just save yourself? Put the money to work in some kind of interest-bearing account instead of giving it to the Fed and state where you get no interest.
Bottom line is, I don’t want to overpay by a large amount. I can live with overpaying $1,000 or $1,500 and getting a return. So if I am a single, unmarried man or woman, working 32 weeks a year, making $2,000 a week, I'm going to fill out my W-4 as married and four since that would get me the most out of my paycheck without underpaying into the tax system and getting fined at the end of the year.
Double Check Calculation And Adjust
Another important thing about filing your W-4 is that, if you use the method above to calculate what your dependent and marital status on a W-4, you should do this at the beginning of the year. Then you should go back and look at your pay stubs and see how much you've actually paid into the system.
So, let's say we get down to November and you have maybe two more weeks in the year you're going to work and you've made $62,000 so far. If you worked at four different places, for example, and you have received 4 pay stubs, you need to take all four pay stubs, look at your year to date earnings, and then add up your gross compensation to date.
There are three numbers you are looking for: 1) your year to date compensation; 2) the year to date federal withholding; 3) and the year to date state withholding (assuming you only worked in one state).
When pulling all year to date numbers, look for two columns on a pay stub. One is the current period you're being paid for and the other is year to date. You’re going to look for the year to date.
If your total compensation, plus the estimate (ie: two weeks), adds up to $62,000 and the federal contributions or the withholding that you have made is $6,500 total, and the contributions that you have made into the state add up to $2,500, then you’re almost there.
This means you have already paid $6,500 of the $8,178 federal tax obligation you are supposed to pay by the end of the year based on your $64,000 yearly earnings. At this point, the difference between what you are supposed to pay and what you have paid is approximately $1,600.
You are estimating two more weeks of work in the year so you are going to be paying more money into the system before the end of the year. However, it is unlikely that you will be able to pay $1,600 within two weeks if you are carrying married and four on your W-4. Only about $300 tax will be deducted in that much time so you wouldn’t have paid enough into the system throughout the rest of the year. This means you will have to crank up the withholding (reduce number of dependents) on your next job.
If I were you, I would change my W-4 to single and zero to have the maximum taken out so that I get more paid into the system before the end of the year.
As the year draws to a close, what I'm doing is testing to make sure that I have paid in enough throughout the year. I typically test at the beginning of November. It gives me six to eight weeks in the year to know how much my earnings have been, and what I think they're going to be for the rest of the year. This way, I can adjust my marital and dependent status on my W-4 to make sure that I've paid enough into the system.
In the example of having made $62,000 and paid in $6,500 throughout the year, and my obligation is estimated to be $8,178, I'm going to make sure that I make additional payments before the end of the year.
The same thing applies to the state level. If my obligation is $3,076 and I've paid in $2,500, I can easily adjust my marital status and my dependents by reducing those numbers to make sure I pay more for the remainder of the year.
The important concept here is that we're testing our contributions to the state and Fed to make sure we've contributed enough throughout the year so that we're not going to wind up owing money to the state and Fed to avoid getting fined.
If at the end of the year, I haven't paid in enough, I’ll simply write a check. That's not really what we want to do, but it's better than paying a fine. The procedure is simple. You fill out a form, attach a check to that form, and it will be assigned to your account based on your social security number. Not the best way to pay in, but better to get it in to the IRS by Dec than to pay a fine in the following year when you file your taxes.
The better way to get the funds in to the IRS is on your W-4 form using the line 6 that says "Additional amount, if any, you want withheld from each paycheck." If you know you need to pay in an additional $500 and you have 2 weeks left of work in the year, put $250 on W-4 line 6 and your obligation will be met and you won't trigger any warning by sending the IRS a check on a form as above.
W-4 Explained Summary
Just blindly filling out married and nine may screw you in the end. You have to be smart and come at it strategically. As a crew member or a freelance employee, you are essentially an entrepreneur. Therefore, running your business in a way that is smart so that you're paying your taxes appropriately and not being overtaxed is one of the most important aspects of being an entrepreneur and succeeding at it. This is essentially monitoring and controlling cash flow.