How to Determine Allowances for W-4

In order to accurately determine how much money to withhold from your paycheck, your employer relies on your Form W-4. When completing your W-4, you have to specify how many allowances you want to claim. Allowances matter because every additional allowance you claim reduces your income subject to withholding. However, it does not reduce your income subject to income taxes at the end of the year. Therefore, properly completing your Form W-4 with the correct number of allowances ensures you are not in for a rude surprise when you complete your income tax return.

Complete the Personal Allowances Worksheet on Form W-4 to figure your base number of allowances. For each situation that applies to you, add one allowance. For example, if you are married with one child and you are the only one working, you would claim up to four allowances. For most people, this will be the maximum number of allowances you can claim. However, you may be able to claim a different amount with the Deductions and Adjustments Worksheet if you plan to claim significant adjustments to income, deductions or credits. If you only work one job or you are married and your household combined earnings are below $10,000 if married, you need to also complete the Two-Earners/Multiple Jobs Worksheet.

Complete the Deductions and Adjustments Worksheet on Form W-4 if you anticipate claiming large deductions, adjustments to income or income tax credits. For example, if you have a child in college and plan to claim the American Opportunity Credit for and you have a home mortgage you will deduct the interest from, you may qualified to claim more allowances on your Form W-4.

Complete the Two-Earners/Multiple Jobs Worksheet if you work multiple jobs and the total earnings exceeds $40,000 or if you are married and both spouses work and the combined earnings from all jobs exceeds $10,000. The worksheet tells you the maximum number of allowances to claim at your most profitable job so that you will not have too little withheld. You should claim 0 allowances at your other jobs.

Report the maximum number of allowances you are allowed to claim on your W-4 if you want to minimize your income tax withholding. If you have other income not subject to withholding, such as interest or capital gains, or if you prefer to have extra withheld so you get a refund, claim fewer allowances than you are entitled to claim.


About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."