 Hello! In this lecture we will define form W4. According to fundamental accounting principles, Wilde 22nd edition, the definition of W4 is withholding allowance certificate filled out with the employer identifying the number of withholding allowances claimed. When we're thinking about the form W4, we're thinking about that form that we're going to have employees fill out at the time of employment or the form that we would fill out at the time of new employment. Reason being is that the employer is going to be in charge of or assigned the task by the government, the IRS, to withhold the federal income tax from the employee's wages and then remit that money to the IRS directly. Therefore, the employer needs some way to figure out how to calculate how much should be withheld from the paycheck. We can think about how that might be done. We know that at the end of the year we're going to calculate our tax liability on the form 1040, but the calculation is a bit complex because we do have a progressive tax system and we might have other types of wages in there other than the wages that we're reporting for this particular job. For example, our spouse might have wages. But one of the major things that are going to be a factor in terms of the taxes will be the exemptions and the other being, of course, the amount of income that we will have. The exemptions are not the exemptions being we get one for ourselves and our dependents. Those are the exemptions. Those can be thought of as similar to reporting the number of allowances, which is basically what we're doing on the W4. Not exactly the same because the number of allowances may be different than what we are reporting on the 1040, but they're similar in that those allowances are similar to the exemptions being a big factor determining what our tax will be. The more exemptions that we have, the lower our tax will be. In the same goes here, the more allowances that we claim in terms of the W4, the less money that our employer is going to take out of our wages and the greater the larger our check will be per check. However, at the end of the year, we may be more likely to have less of a refund or actually owe money at the end of the year. That's going to be the calculation of the W4. Now we do have a worksheet in order to help the calculation of the W4. This is going to be going through some steps to try to see what the number of exemptions should be. And again, it's a tough calculation because there are other factors. The spouse could have an impact in terms of the total income because the income is going to be combined with the employee's income. We could have other income from other sources. We could have a lot of deductions from other sources. So taking those into consideration to figure out the proper amount of allowances in order to get the proper amount withheld for our income is the purpose of the W4.