Tax allowances reduce your taxable wages and the amount of federal income tax that comes out of your paychecks. The more allowances you claim, the smaller your withholding. To claim your allowances, you must fill out a W-4 and give it to your employer. Because allowances are based on your personal situation, you should review the form at least annually and complete a new one if necessary. Filling out the form properly helps you avoid issues with the IRS; knowing the value of your allowances is useful during budgeting.
Claim your allowances from lines A through G of the W-4’s Personal Allowances Worksheet if you meet the stated criteria. For example, select an allowance for yourself on line A if no one else can claim you as a dependent and an allowance for your child on line D if she’s also your dependent. Write the total number of allowances for lines A through G on line H.
Fill out page 2’s Two-Earners/Multiple Jobs Worksheet if you have more than one job or if you and your spouse both work. Complete the Deductions and Adjustments Worksheet if you intend to claim income adjustments or credits, or if you itemize deductions on your tax return. The result from the Deductions and Adjustments Worksheet should go on line H of page 1’s Personal Allowances Worksheet. The result from the Two-Earners/Multiple Jobs Worksheet is the extra amount to be withheld from your paycheck.
Review and complete the Employee’s Withholding Allowance Certificate on page 1. Include your filing status on line 3. Transfer the total allowances from H to line 5, and if applicable, the extra amount from line 9 of the Two-Earners/Multiple Jobs Worksheet to line 6. After signing and dating the allowance certificate, give it to your employer.
Perform an online search for Internal Revenue Service, Circular E, to obtain the amounts for each allowance. For example, in 2013, the IRS gives $75 per allowance for a weekly payroll, $150 for a biweekly payroll, $162.50 for a semimonthly payroll and $325 for a monthly payroll. If you earn $800 biweekly and claim one allowance, only $650 of your wages is subject to federal income tax. If you had no allowances, the entire $800 would be taxed.
Find the tax table in the Circular E that matches your pay period, filing status, gross wages and number of allowances to figure the amount of tax that should come out of your paychecks.
Tips
If you are unmarried with dependents, you can claim an allowance for head of household on line E of your W-4. Then check “single” as your filing status on line 3 of the allowance certificate. At tax time, you can file as head of household. Do not claim any allowances if you meet the requirements for “Exempt,” as stated on line 7 of the allowance certificate. Exempt means that you are not subject to withholding, while allowances indicate that you are. Therefore, it has to be one or the other. If the state or local government uses a comparable system for state or local income tax withholding, fill out the required tax form to choose your allowances.
Warnings
To obtain a bigger paycheck, you might be tempted to choose allowances for which you do not qualify. This will cause you to owe the IRS at tax time plus incur interest and penalties if you cannot pay the bill on time.
References
- H&R Block: Withholding Allowances
- IRS.gov: 2013 Form W-4
- IRS.gov: Publication 15
- StateW4.com: Blank Withholding Forms
- Internal Revenue Service. "Topic No. 753 Form W-4 – Employee's Withholding Allowance Certificate." Accessed Dec. 7, 2019.
- Internal Revenue Service. "Tax Trails - Can You Claim Exemption from Withholding on Form W-4?" Accessed Dec. 7, 2019.
- Internal Revenue Service. "Publication 501 (2018), Dependents, Standard Deduction, and Filing Information." Accessed Dec. 7, 2019.
Resources
Tips
- If you are unmarried with dependents, you can claim an allowance for head of household on line E of your W-4. Then check “single” as your filing status on line 3 of the allowance certificate. At tax time, you can file as head of household.
- Do not claim any allowances if you meet the requirements for “Exempt,” as stated on line 7 of the allowance certificate. Exempt means that you are not subject to withholding, while allowances indicate that you are. Therefore, it has to be one or the other.
- If the state or local government uses a comparable system for state or local income tax withholding, fill out the required tax form to choose your allowances.
Warnings
- To obtain a bigger paycheck, you might be tempted to choose allowances for which you do not qualify. This will cause you to owe the IRS at tax time plus incur interest and penalties if you cannot pay the bill on time.
Writer Bio
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.