On my way home late at night, the moon was particularly bright. That day, I received a photo of a friend's first paycheck stub on my phone, and they were upset because the amount was much lower than expected.

When starting a new job, everyone tends to have a similar experience. When you divide the annual salary stated in the contract, you expect a certain amount to come in, but the number that appears in your bank account is quite different.

Today, I want to calmly sort out where that missing money went and why the W-4 form is so important.

First, let's look at the deductions that come out of your paycheck. Social Security tax at 6.2% and Medicare tax at 1.45%, totaling 7.65%, are deducted at a fixed rate regardless of the W-4.

On top of that, federal income tax withholding applies, and if you work in New York, state income tax is deducted separately. If you are a resident of New York City, city income tax is added as well.

The part that I can adjust through paperwork is the federal income tax. The document that informs the company of this is Form W-4.

However, many people tend to overlook this form on their first day among the pile of paperwork. I remember submitting it blank without knowing what it meant.

What happens if you don't submit a W-4 at all? According to IRS regulations, the company will treat you as single with no adjustments and withhold taxes accordingly.

If you are married and plan to file jointly or have children, this could lead to excessive withholding. This is one common reason why the first paycheck feels particularly small.

Of course, the extra money withheld will be refunded during the next year's tax filing. However, it doesn't feel great to have your money sitting with the government without interest for an entire year.

The opposite mistake can be even more painful. A typical case is when someone works two jobs or both spouses work, but they leave Step 2 blank.

Each company assumes that your income comes solely from that job when withholding taxes, so when combined, the withholding may fall short. While your monthly paycheck may look ample, you might receive a hefty tax bill the following spring.

Be cautious with Step 3, the dependents section. In the 2026 version of the W-4, the amount for each child under 17 has increased to $2,200.

If you include ineligible family members or both spouses list the same child on their W-4s, less tax will be withheld, and you'll end up having to pay that amount later.

Be careful not to check the Exempt box carelessly. This applies only if you had no federal income tax last year and expect none this year.

Exempt status must be reapplied for each year, and if you don't submit a new W-4 by February 15 of the following year, the company will start withholding based on the single status again.

The 2026 version of the W-4 was finalized by the IRS in December 2025. If you want to claim exempt status, it has now changed from writing it out to marking a checkbox.

The deduction worksheet has also added sections for tips and overtime pay deductions. Those who work in restaurants or have a lot of overtime should take a look.

If withholding is insufficient, it may not just end with owing taxes instead of receiving a refund. If you owe more than $1,000 in taxes, you could face an underpayment penalty.

However, the IRS states that if you have already paid more than 90% of this year's tax or more than 100% of last year's tax, you typically can avoid penalties. There are separate criteria for high-income earners.

If you intentionally write a W-4 to reduce taxes without justification, there is a civil penalty regulation of $500. However, simple mistakes are not penalized, so there's no need to be overly worried.

In New York, a separate form called IT-2104 is required for state taxes. Many people submit only the W-4 and overlook this form.

The IT-2104 also has a section to indicate if you are a resident of New York City, and if you have two jobs, it states to submit it separately to each company. There is also a reminder to review it once a year.

So, what should you do now? The most reliable method is to use the Tax Withholding Estimator on the IRS website.

By having your recent pay stub and last year's tax return handy and entering information for about 25 minutes, it will generate a W-4 based on the results. It does not ask for your name or social security number.

When life changes, such as marriage, childbirth, job changes, or starting a side job, it's appropriate to submit a new W-4. You can resubmit it to the company at any time throughout the year.

If I were you, I would check the federal withholding amount on the day I receive my first paycheck. Then, I would run the numbers once and make adjustments if necessary.

Getting a large refund feels good, but there are times when the money you hold each month is more valuable. Conversely, having to pay a large sum in the spring is a bitter experience for anyone.

It's a bit disheartening to think that one piece of paper can influence your finances for an entire year. Tonight, I plan to enjoy a drink under the moonlight and ask HR about the W-4 again in the morning.