Final answer:
The W-4 form is the document used by employees to indicate their withholding allowances for the purpose of calculating federal income tax to be deducted from their paychecks.
Step-by-step explanation:
The form used to identify the number of withholding allowances chosen by an employee is known as the W-4 form. This form plays a crucial role in determining the amount of money withheld from an employee's paycheck for federal income tax purposes. When starting a new job, employees fill out the W-4 form to specify their tax situation, which includes their marital status, number of allowances, additional withholding amounts, and any applicable deductions or credits they might be eligible for. The withholding allowances are essentially used to calculate how much federal income tax should be withheld from each paycheck. More allowances claimed means less tax withholding, leading to a higher net pay. However, if too few taxes are withheld, the employee may owe money when filing their annual tax return.
It is important to balance the number of allowances so that enough taxes are paid throughout the year to avoid owing a large amount of taxes come April, when U.S. citizens and residents are required to file an income tax form. Changes to the tax code can significantly influence fiscal policy and the economy. Therefore, an accurate W-4 form contributes to the overall financial health of both individuals and the economy.