Contractor License Practice Exam

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What form must an employee complete to calculate federal withholding based on filing status and allowances?

W-2
W-4
1099-MISC
1040

The correct answer is: W-4

The W-4 form is essential for employees as it allows them to provide their employer with information regarding their tax withholding preferences. When filling out the W-4, employees indicate their filing status (such as single, married, or head of household) and the number of allowances they wish to claim. This information directly affects the amount of federal income tax withheld from their paychecks. Employers use the details provided on the W-4 to calculate the appropriate amount of federal withholding tax, ensuring that employees meet their tax obligations without overpaying or underpaying throughout the year. Understanding how to accurately complete the W-4 form is vital for employees to manage their income tax liabilities effectively. In contrast, the W-2 form is used to report wages and the amount of withholding to the IRS at the end of the tax year, the 1099-MISC form is used to report income for workers who are not classified as employees, and the 1040 form is a personal income tax return that individuals complete at the end of the year. Each of these forms serves a distinct purpose, but they do not facilitate the calculation of federal withholding at the outset like the W-4 does.