When it comes to taxes, people throw around jargon frequently without realizing the small differences between the words. For example, people often use the word “exemptions” interchangeably for both the number of allowances you claim on your W-4 and the number of personal exemptions you claim on your income tax return. Though the two numbers often are mistakenly called the same thing, your allowances on your W-4 don’t have to equal your personal exemptions claimed on your tax return.
The allowances you claim on your W-4 do not have to be identical to the exemptions you list on your tax return.
Allowances on Your W-4
Your Form W-4 is used by your employer to determine how much money to withhold from your paycheck for income taxes. The more personal allowances you claim, the less money will be withheld from your paycheck. The W-4 form has different ways to calculate the number of allowances to claim, based on your filing status and dependents, the different deductions and credits you expect to claim, or the number of allowances if you work multiple jobs. If you prefer to receive a larger tax refund, you can claim fewer allowances than you are entitled to claim so that more money is withheld during the year. That way, when you file your taxes, you get a larger refund.
Personal Exemptions on Your Tax Return
For the 2017 tax year, when you filled out your tax return, you claimed personal exemptions for yourself if no one else could claim you as a dependent, and any others, such as your spouse or children, whom you claim as dependents. This number doesn't have to match the number of allowances you claimed on your W-4. However, if you claimed too many personal allowances on your W-4 form, it will result in your employer withholding too little income tax from your paychecks. Not only will you have to make up the difference by paying when you file your tax return, you also could be subject to additional interest and penalties for under-withholding.
Changes in 2018
Beginning in 2018, personal exemptions have been eliminated from the federal income tax code, so you no longer receive a deduction for yourself and any other individuals you claim as a dependent. So, whether you have one child or 10, it won’t affect your tax return. In addition, the 2018 W-4 form no longer has a line for an additional allowance if you claim your spouse or any others as your dependent on your tax return. Personal allowances are scheduled to come back into the tax code starting in the 2026 tax year, but the tax law could change before that date.
- IRS: Form W-4 With Instructions
- IRS: Publication 17 -- Your Federal Income Tax
- Legal Information Institute: 26 USC 151
- IRS: Topic Number 306 - Penalty for Underpayment of Estimated Tax
- New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- Internal Revenue Service. "Topic No. 753 Form W-4 – Employee's Withholding Certificate." Accessed Sept. 22, 2020.
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."