Is It Better to File One Dependent Rather Than Zero on a W-2?

The decision to claim one dependent on a W-4 rather than zero is a personal one; there is no one-size-fits-all answer that’s right for every taxpayer. Before making this choice, you must take your filing status, income, age and other factors into account. Depending upon your situation, filing one dependent versus none at all can mean the difference between the IRS sending you a refund check at time tax, or a bill. If you find your situation changing throughout the course of your employment, notify your employer that you’d like to submit a new W-4 form. Neither the IRS nor your employer will ask you to update your W-4; you need to request that yourself. If you’ve recently gotten married, had a child, or gotten divorced, these circumstances would warrant taking another look at your W-4.

With a sea of alphabet IRS forms to navigate, it’s easy to understand how these two forms are such sources of confusion – they all begin to look the same after a while. Even though Form W-2 and W-4 have similar names, they serve two different purposes. When you get a new job, one of the first forms an employer has you fill out is the W-4. This lets the employer know how much federal income taxes to withhold from your paycheck. The amount withheld depends upon your personal situation, including your marital status and whether or not you have children. You are allowed withholdings – or allowances – for yourself, your spouse and any dependents you may have. These allowances then determine the taxes to withhold, summarized on the W-2 your employer sends you at the end of the year.

Form W-2 details what you were paid in wages, how much and which taxes you paid, plus any contributions, such as Social Security and Medicare you made for the year. While the W-4 determines how much in taxes are taken from your paycheck, the W-2 is simply a reporting of it all. You do not claim dependents on Form W-2, rather, you do so on Form W-4. Any dependents you have are responsible for reporting the income they receive on their own tax return using the W-2 received from their employer. Although you may be able to claim someone as your dependent, and claim an allowance for them, you cannot claim the income from their W-2 on your own return.

In order to increase your chances of a refund, you will need to adjust your W-4 to reflect zero withholdings. This means that the maximum amount of taxes will be deducted from each paycheck. The benefit of this is that you are likely overpaying on your taxes, and will probably receive a refund – barring any other obligations such as back taxes or child support that could trigger an interception. Taxpayers often choose to claim zero allowances in anticipation of a larger refund at tax time that can be used for paying down bills or however they see fit. Though this does work for some people, others choose to take home a larger paycheck and invest the extra money themselves throughout the year rather than letting the IRS have interest-free use of it.

The total number of allowances you are claiming has impact on your take-home pay. The more you claim, the larger your take-home pay. However, this also means you might receive a hefty bill at tax time if you aren't careful. But, depending on your personal situation, claiming one allowance doesn’t automatically mean you will owe taxes – you could even receive a refund in addition to taking home more money every pay period. Itemizing deductions, rather than claiming standard deductions, can help offset any tax liability that you may have. When in doubt, consult with a qualified tax adviser, or the IRS’ website, for further guidance.