There is no simple answer on how to fill out a W-4
as it varies from job to job and person to person
depending on a variety of factors.
One of the greatest problems performers have is filling out their W-4s, the tax form that is presented to us every time we get a new job. The information we place there is used by the employer to determine what amounts of taxes should be subtracted from our checks for the Federal and State withholding.
First, don’t listen to advice from other actors on the set. They are usually wrong.
To be honest though there is no simple answer on how to fill out a W-4 as it varies from job to job and person to person depending on a variety of factors. The process as described by the IRS on the basic form is designed for the individual with one job during the year and that’s almost never a performer.
The amount of withholding changes depending on the size of the check that is written, the filing status and the number of your dependents (or exemptions) you have placed on the W-4. Even with identical information placed on two W-4s, a check written for a small amount may have very little withheld for taxes while a check for a much greater amount has a greater percentage withheld. Even then the individual payroll companies don’t play by the same rules. Most of the theatrical studios now withhold at a minimum of 25% for Federal withholding for all checks, including residuals paying less than a dollar.
In the meantime there is a commercial payroll company that consistently under withholds to the detriment of most performers. If an actor has a particularly good year booking commercials, they can often end up owing thousands of dollars to the taxing agencies; money that they have probably already spent. One actress came in to us one year having made over $100,000 from commercials, thrilled that she was finally able to pay off all of her credit cards. Unfortunately, when she learned that too little had been withheld from her checks and she was hit with the Alternative Minimum Tax or AMT (a supplementary tax that ultimately limits the amount of total deductions a tax payer is allowed to write-off), she owed thousands of dollars. As she sat in our office in tears she realized that the only place she would be able to get the money to pay off her tax debt was from her credit cards and the vicious cycle started again.
She is just one of many who have come through our office to face this same problem. We have a box of tissues on each of our desks to deal with the tears this company has generated through the years.
All too many performers believe that they should place as many exemptions (NEVER more than nine) as they legally can on the W-4 in order to keep as much of the income for themselves and they don't worry about the results until they fill out their tax return. The obvious problem is most performers never have the money when they ultimately learn they had too little of their income withheld and are forced to write out a check to the IRS and/or the state(s) to cover what they owe.
This isn't helped when the production companies disregard the instructions of the performer and/or "assist" the actor in withholding too little. How much of a problem is this? Every year we see it over and over again. The record for our office was $117,000 dollars in commercial income from ONE company and only $1,500 withheld. For a single person (excluding deductions/write-offs) that amount should normally have been $26,000 to the IRS and additional California taxes would have been another $8,500 alone. In another case we had an actor receive a W-2 for slightly over $80,000 with NOTHING withheld for Federal and state taxes.
Commercial actors have a real problem because a good year with a lot of visibility usually means little work the following year when they need the money to pay last year's tax bill. And quite frankly, it usually doesn't matter how little a performer owes, most of them have very little of their income saved come tax time unless they have been through this before and have prepared themselves.
As we said above, there is no specific information that applies to all scenarios. Different actors have differing amounts of deductions and they vary each year. If you get more work you may take fewer classes, but pay more in agent/manager commissions. You might be auditioning more than ever, but have a bad year booking jobs.
And don’t forget actors work for numerous companies throughout the year, some of them paying a little and some of them paying a lot. While each company may have withheld properly for the specific work and the amount of earnings the actor made for that company, the overall income from the combined sources means that the withholding from each company was ultimately less than it should have been.
A rule of thumb we suggest is simple: Never have a check arrive with nothing withheld. When that happens you should know immediately you have a possible problem (unless your total income for the year is less than $7,00 to $8,000 or about the amount of your standard deduction and personal exemption.)
If your TOTAL income (from ALL sources) is about $35,000 or less (as a single person) and you have reasonable write-offs for a performer, you should make sure you have at least 10% withheld in Federal taxes. If you do, usually the amount needed for the state taxes follows suit. (Don't hold us to this though; each case is different person to person, location to location.)
When you see your income rising beyond $35,000 (REMEMBER-- this is a VERY general suggestion) you will want to see even more withheld, up to 20% or more.
We realize this is difficult to accept but owing anything the following year for income you have already spent is worse than having to live on less money during the year you are making the money. The alternative is having to make payments, whether on a credit card or to the IRS to pay last year's taxes when you are also trying to make sure that you are having enough withheld THIS year AND trying to live on the balance.
And if the income you are receiving is for self-employed income (cash or 1099 work such as modeling, personal appearances, etc. or some other form of occupation), then it is YOUR responsibility to remember that each dollar you earn is subject to 15% self-employment tax PLUS the normal Federal and state taxes of 10% to 15% in the lowest brackets (it can be over 30% in the higher brackets.) That means you had better be prepared to pay at least 30 cents of taxes on every dollar you earn or more when "self-employed!" (Check out our link on “Self-Employment”)
Below is a link to a website to assist you with your W-4 process. This may also help you to determine what you will owe throughout the year depending on your income. However this website is established to show you the withholding allowances and the standard deduction based on overall W-2 income only. It doesn't allow for itemized deductions and other write-offs. Assuming that you might be spending a similar amount in write-offs as you did last year (WARNING--This is not always the case) you could subtract that total from your overall income to offer a slightly closer idea of the amount you should have withheld on the income you have earned.
WARNING: Again this website is only to provide estimates and is NOT set up to consider deductions and doesn't allow for the possibility of hitting the Alternative Minimum Tax (AMT).
Once again we have to place a warning here:
The advice we have offered above is exceedingly general and is presented for educational purposes ONLY. If you have any questions you should contact your preparer for more specific advice on your particular tax situation.
Receiving too much of a tax refund is rarely seen as a problem for our clients, owing money almost always is. If they file early they receive their money sooner and have lost little use of the income that may have been over withheld. Once they have an understanding of their tax situation, and if they prefer to have more of their income available throughout the year, we are able to assist them in learning how to have better control of their withholding.
Unfortunately as we all know, the income pattern for most actors has as much ebb and flow as the tide -- with far less regularity.