The goal of most American taxpayers is to reduce their tax liability and hopefully receive a refund after tax season. However, for some wage earners, the goal is to have as little tax withheld from their paychecks as possible. Even though this practice might result in a sizable tax bill from Uncle Sam, you could end up breaking even without letting the IRS have interest-free use of your money for the year. In order to lower the amount of tax that is withheld from your paycheck, you need to increase the number of allowances you claimed when you filled out your W-4 form for your employer. Your W-4 determines the amount of money your employer withholds from each paycheck.
If you want less taxes taken from your paycheck, then you need to adjust your W-4 and claim more allowances. However, it is important to remember that the more allowances you take at this time, the less likely it is that you will benefit from a tax refund at the end of the year. In some scenarios, you may end up owning taxes during your filing.
How Allowances Impact Your Tax Withholding
The number of allowances you claim on your W-4 depends on the number you qualify for, in addition to other factors. Typically, you can take one allowance for yourself, your spouse and for each qualifying dependent. You can increase the number of W-4 allowances you claim even further if you plan to itemize your deductions on Schedule A, if you qualify for a child care tax credit, or if you file as head of household. You can claim as many allowances as you’re eligible for, and the number of allowances will not necessarily match the number of exemptions that you claim on your IRS Form 1040. It is worth noting that for tax years 2018 through 2025, taxpayers are no longer able to claim personal exemptions on tax returns but can still claim allowances on Form W-4.
Filling Out Your W-4 for Lower Tax Withholding
You probably filled out your W-4 when you first began working for your employer. Each job you have requires you to fill out a separate W-4 form. If you have two W-4s as a result of working two jobs, the IRS advises you to claim all your allowances on your highest paying job, and zero deductions on any others.
It's a good idea to recheck your W-4 and make adjustments whenever your life situation changes. For example, if you were single with zero allowances when you first started your job and two years later you're married with a child, you probably should increase your exemptions to reduce your withholding amounts. Your employer won’t ask you for an updated W-4 and neither will the IRS. It is your responsibility to make sure you have the most appropriate and up-to-date paycheck withholding deducted from your earnings.
Making adjustments to your W-4 isn’t as complicated as it may seem. You can request a new W-4 from your employer at any time. The IRS supplies taxpayers with worksheets that walk them through filling out this form. Check the IRS website for interactive tax assistance tools and publications that help determine the appropriate number of withholding allowances for your individual situation.
What Happens When Less Tax Is Taken Out?
When you choose to have less tax withheld from each paycheck, your odds of a tax bill or a smaller refund increase. However, this doesn’t mean you’ll automatically have tax obligations when it comes time to file. Some taxpayers opt for having the maximum amount withheld from every paycheck by claiming no exemptions in anticipation of receiving a refund at the end of the year. This is helpful for workers who have trouble saving on their own, but the scenario isn’t ideal for everyone.
Allowing the IRS to hold on to a bit more of their paychecks makes it easier for some people to have a lump sum to do with as they please. Still, other taxpayers prefer to use any extra money per pay period for investing or using as they wish, rather than letting the IRS have interest-free use of it.
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.