If federal income tax withholding was as easy to predict as Medicare and Social Security withholding, you would have no problem figuring its effect on your paycheck. Unlike the latter two, which are based on flat percentages of your wages, federal income tax is based on the information you put on your W-4 form. If you change your W-4 conditions, it may increase or decrease your withholding.
Understanding Withholding Adjustments
Before calculating your withholding change, you'll need your filing status and number of allowances from lines 3 and 5 of your W-4. An easy way to understand allowances is to remember they reduce taxable income -- the more allowances you claim, the less your withholding. On the flip side, the fewer allowances you claim, the higher your withholding.
Calculation of Withholding Taxes
Let's say you change your allowances from zero to one and claim married filing status on your W-4. You also earn $2,000 every two weeks. As of 2018, for a biweekly payroll, the Internal Revenue Service gives $152.00 per allowance, according to IRS Circular E. Subtract this amount from $2,000 to get $1,848.00. You are taxed between 10 and 35 percent of your wages that go over a certain amount, based on your income. In most cases, you must also pay a flat amount. In your case, your wages over $1,177 would face a 12 percent tax plus a flat amount of $73.30.
Your calculation would go like this: $1,848.00 - $1,177.00 = $671.00 x 12 percent = $80.52 + $73.30 = $153.82 for your federal income tax each paycheck. If you had changed from one allowance to two, you would multiply the amount per biweekly allowance, $152.00 by two to get $304.00. Then you would subtract $304.00 from $2,000 to get $1,696.00, which means less taxes and more take-home pay.
Allowance Per Pay Periods
As of 2018, you get $79.80 per allowance for a weekly payroll, according to the IRS. You get $172.90 for a semi-monthly payroll and $345.80 for a monthly one. Multiply your total allowances by the value to get the amount that's excluded from your tax calculation.
Exploring Your Filing Status
Allowances aren't the only conditions for federal withholding. It also depends on your filing status. "Single" is the highest tax bracket, and "married" is the lowest. If you're married but the married tax rate won't cause enough withholding, you can check the "Married, but withhold at higher Single rate" box so more tax is withheld. You may need to do this if you and your spouse both work and your combined income puts you in a higher tax bracket.
Changing Your Allowances
To change your allowances, complete sections A through G of the Personal Allowances Worksheet of your W-4. For example, if you no longer have dependents, put zero on line D. Indicate the total allowances on line H before transferring the data onto line 5 of the Employee's Withholding Allowance Certificate section. If you landed a second job or if you and your spouse both work, fill out the Two-Earners/Multiple Jobs Worksheet on page 2 of the W-4. This will help make sure enough tax is withheld. State any extra amount you want withheld in Box 6 of the withholding certificate. If you intend to claim specific credits or itemize your deductions when you file your return, fill out the Deductions and Adjustments Worksheet on page 2 of your W-4. This process tells you the amount of allowances you should put on line 5 of the withholding certificate. Give the withholding certificate to your employer.
Important Ideas to Consider
If you claim more allowances than you're entitled to, you'll likely owe the IRS money at tax time. However, if you claim fewer allowances than you're entitled to, you'll likely get a refund. If the IRS finds you're claiming too many allowances, which reduces the government's cut of taxes, it may send your employer a lock-in letter to change your withholding to a specified amount. The IRS recommends using its online withholding calculator to help you fill out your W-4 so you pay the correct amount of tax.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.