What does the Form W-4 estimate for an employee in the United States?

• A. The amount of Social Security tax owed by the employee
• B. The employee's eligibility for health insurance benefits
• C. The total annual salary an employee will earn
• D. The amount of federal income tax to withhold from an employee's paycheck

Answer: (D)

Verified step by step guidance

1. Understand the purpose of Form W-4: Form W-4 is used by employees in the United States to inform their employer about their tax situation, such as filing status and number of dependents, to determine the correct amount of federal income tax to withhold from their paycheck.
2. Clarify what Form W-4 does not estimate: It does not calculate Social Security tax, as that is a fixed percentage of wages set by law. It also does not determine health insurance eligibility or the total annual salary of the employee.
3. Focus on the key function: The primary purpose of Form W-4 is to estimate the amount of federal income tax to withhold from an employee's paycheck based on the information provided by the employee.
4. Explain the withholding process: Employers use the information from Form W-4, along with IRS tax tables, to calculate the appropriate amount of federal income tax to withhold from each paycheck.
5. Summarize the correct answer: The correct answer is that Form W-4 estimates the amount of federal income tax to withhold from an employee's paycheck, ensuring the employee pays the correct amount of tax throughout the year.