Filing out your W-4 correctly is important for a variety of reasons. Failing to do so can result in too much or too little taxes being withheld from your paycheck. This directly affects whether you can expect a refund at tax time, or whether you end up owing Uncle Sam. How many allowances you should claim depends on your own individual tax situation. On December 22, 2017, the new tax code was signed that will have an impact on tax withholding guidelines. However, this new tax code does not go into effect for the 2017 taxes that will be filed in 2018. If you’re uncertain whether to claim 0 or 1 on a W-4, consult with your tax adviser or the IRS website to help decide the best choice.
Whether or not you choose to claim an allowance on your W-4 form will have a direct impact on the size of your tax refund. Generally speaking, an increase in the number of allowances results in a decrease in your tax refund.
What Are Allowances and Exemptions?
Sometimes, the words allowances and exemptions are used interchangeably, causing some confusion. Exemptions reduce the amount of income on which you're taxed, and are claimed on IRS Form 1040. You can claim one exemption for yourself, your spouse and each qualifying dependent. If someone else claims you on their taxes as a dependent, you cannot file an exemption for yourself, even if you are required to file taxes.
Allowances are claimed on the W-4 you fill out whenever you start new employment. How many allowances you claim on your W-4 depends on your personal situation, how many jobs you have, marital status and number of children you have, among other things. Sometimes you may find your life’s circumstances changing. The birth of a new child, a marriage or a change in your dependency status are good times for you to take another look at your W-4. You can adjust your W-4 at any time to ensure the correct amount of taxes are being withheld. The IRS website has a helpful interactive tax assistant tool that walks you through the process of figuring how many withholdings you should claim.
Can I Expect a Refund Claiming 0 Allowances?
The number of allowances you claim will either give you a larger paycheck, or a larger refund. When you claim zero allowances, you are having the largest amount withheld from each paycheck for federal income taxes. This may be what you want if your goal is to receive a larger refund at tax time. However, some taxpayers view this as loaning the federal government interest-free use of their money for the year, and would rather invest it themselves. People who opt to have zero allowances withheld often do so because they’d rather have a lump sum to use as they wish – be it for bills, travel or investments.
When to Claim 1 Allowance on a W-4 Form?
If you’re single with only one job and no dependents, then claiming one allowance on your W-4 is generally your best option. Taking one allowance will likely result in a refund at tax time, while still allowing you to receive a larger paycheck every pay period, unlike claiming zero. However, if you are single with no dependents and you have two jobs, you can then claim two allowances – one for your first job and one for your second. You can also claim both allowances on one W-4, and zero allowances on the second job's W-4.
Tara Thomas is a Los Angeles-based writer and avid world traveler. Her articles appear in various online publications, including Sapling, PocketSense, Zacks, Livestrong, Modern Mom and SF Gate. Thomas has a Bachelor of Science in marine biology from California State University, Long Beach and spent 10 years as a mortgage consultant.