The number of dependents you claim on your federal or state income tax withholding form may differ from the amount of taxes deducted from your paycheck. Dependents are also called allowances, and depending on your situation, may represent all – or some – of your allowances.
The Internal Revenue Service administers federal income tax rules. You are supposed to put your allowances, including number of dependents, on your W-4 form, which helps your employer to figure out the amount of federal income tax to withhold from your paychecks. Each dependent must meet IRS “qualifying child” criteria to qualify. This includes meeting the age, relationship, residence and relationship test. In most cases, qualifying child applies to a child or individual (except for yourself or your spouse) whom you support. You put your total number of dependents on Line D of the W-4 and your total allowances on Line 5.
Each dependent or allowance you claim on the W-4 gives an amount, which lowers the amount of your pay subject to withholding. This amount is based on the IRS Circular E, which includes the percentage table for calculating allowances based on your pay period. For example, in 2011, the IRS gives $14.23 per allowance for a daily payroll, $71.15 for a weekly payroll, $142.31 for a biweekly payroll, $154.17 for a semimonthly payroll and $308.33 for a monthly payroll.
If you have two dependents and are paid weekly, $142.31 is subtracted from your gross pay before taxes are taken out. Since all of your dependents may not equal your total allowances, if you have two dependents and claim an allowance for yourself on Line A of the form, you have three allowances. In this case, if you are paid weekly, $213.45 is subtracted from your weekly pay before income tax is deducted.
After deducting dependents or allowances, your employer calculates the amount of federal income tax that should be withheld from your pay. To accomplish this, he applies the Circular E’s percentage method table that matches your income after allowance, pay period and filing status.
If your state uses a state income tax withholding system that is comparable to federal income tax withholding, you claim your dependents or allowances on the state withholding allowance certificate, which is similar to the W-4. Your employer uses the form and the state withholding tax table, which is similar to the Circular E, to figure out the amount that the state gives per allowance and to calculate the state income tax amount that should be deducted from your pay.
The best way to understand the difference between dependents and taxes withheld is to view dependents as money that is given to you and subtracted from your wages, which lowers the amount of income tax that you pay, and income tax withholding as a liability that is deducted from your pay after allowances.
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.