How to Calculate W-2 Allowances

by Michael Keenan ; Updated July 27, 2017
Claiming too many allowances will result in you owing money at tax time.

The Internal Revenue Service requires employers to withhold money from your paychecks during the year to cover your income taxes. To figure out how much to withhold -- which is the amount shown on your W-2 that you report to the IRS when you file your return -- you must submit a Form W-4 to your employer. Each personal allowance you claim reduces the amount withheld from your paycheck.

Personal Allowances Worksheet

The personal allowances worksheet is the simplest way to calculate the number of allowances to claim when you file your W-4. On this form, add up the number of allowances you're eligible for based on the criteria on the form. For example, you're allowed one allowance for each person you claim as a personal exemption on your tax return, including yourself and your spouse. You also get to claim additional allowances if you file your taxes as head of household, have more than $2,000 in child-care expenses or are eligible for the Child Tax Credit.

Deductions and Adjustments Worksheet

If you have substantial deductions and credits you're going to claim, you may be eligible to claim more allowances than you qualify for based on the personal allowances worksheet. For example, if you have a substantial mortgage interest deduction, charitable donations or education tax credits, you can use the deductions and adjustments worksheet to see if you can claim extra. This worksheet estimates how much lower your income tax liability will be because of the deductions and converts that amount to the number of allowances you should claim to approximate your tax withholding. To complete the form, you need to estimate all of your deductions and credits.

Two-Earners/Multiple Jobs Worksheet

If you work multiple jobs, or if you're married and your spouse also works, your withholding will be most accurate if you combine your allowance, claim them on the W-4 for the highest-paying job and report "0" on your other W-4. To figure out how many allowances to claim, use the two-earners/multiple jobs worksheet. The worksheet starts with the number of allowances you would be able to claim based on either the personal allowances worksheet or the deductions and adjustments worksheet. Then, depending on whether you are filing a joint return or using a different filing status, you use the tables and your wages from your highest- and lowest-paying jobs to figure out how many allowances you should claim.

Claiming W-4 Allowances

The number of allowances calculated by whichever worksheet applies to you is the maximum number of allowances you can claim on your W-4. However, that doesn't mean you have to claim that number of allowances. For example, if you prefer to receive a larger refund, claim fewer exemptions so that you will have more withheld during the year. Alternatively, if you have substantial income that isn't subject to withholding, such as interest income or capital gains, reducing your allowances on your W-4 increase your withholding from your wages enough to avoid having to make estimated tax payments.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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