What is the purpose of IRS form W-4?

The purpose of IRS Form W-4 is to inform your employer of how much federal income tax to withhold from your paycheck. When you fill out this form, you provide information about your filing status, the number of allowances or exemptions you are claiming, and any additional amount of withholding you would like. This form ensures that the correct amount of federal withholding tax is deducted from your earnings, which is essential for managing tax liabilities throughout the year. By accurately completing the W-4, you can mitigate the risk of under-withholding, which may lead to owing taxes at the end of the year, or over-withholding, which results in receiving a tax refund.

The other options involve different aspects of tax reporting and responsibilities. Claiming earned income credit relates to a specific tax credit for low to moderate-income workers but does not directly influence the withholding process. Determining state tax liability pertains to state income tax obligations, which are generally handled separately and may require different forms. Reporting unemployment income involves documenting earnings received from unemployment benefits, which is also distinct from the withholding of federal income tax.