Arizona Contractors License Practice Exam

What is the primary purpose of IRS Form W-4?

1. To report income to the IRS

2. To determine the appropriate level of federal tax withholding

3. To apply for a business license

4. To request an extension for tax filing

The correct answer is: To determine the appropriate level of federal tax withholding

The primary purpose of IRS Form W-4 is to determine the appropriate level of federal tax withholding from an employee's paycheck. When an individual starts a new job or experiences changes in their financial situation, they fill out this form to inform their employer of the number of allowances they are claiming, as well as any additional amounts they want withheld. This helps ensure that the correct amount of income tax is deducted from their pay, which can prevent underpayment or overpayment of taxes throughout the year. The form takes into account factors such as marital status, number of dependents, and other personal circumstances that can affect withholding levels. By providing this information, employees can better manage their tax liabilities and aim for a more accurate tax return when they file. In contrast, reporting income to the IRS, applying for a business license, and requesting an extension for tax filing serve different purposes and involve different forms or procedures that are not directly related to the withholding of federal taxes from wages.