Your federal income tax withholding is largely based on the amount of allowances you claim on your W-4. Specifically, each allowance gives you an amount, which reduces the amount of your pay that is subject to withholding. The Internal Revenue Service allows you to claim dependents as allowances on your W-4. The agency also mandates the amount each dependent is worth.
You cannot claim just any child or person as a dependent on your W-4; ensure the person meets IRS criteria before doing so. A dependent can be a qualifying relative who satisfies the following dependency tests: relationship, support, gross income, citizenship or residency and joint return. A dependent can also be a qualifying child who meets the relationship, age, residence and support tests. Consult IRS Publication 501 for the criteria for dependents.
You are supposed to complete lines A through G of the Personal Allowance Worksheet of your W-4; keep this section for your records. You also complete the Employee’s Withholding Allowance Certificate portion and give it to your employer. Your employer uses your W-4 and IRS Circular E withholding tax tables to figure out your federal income tax withholding. You put your number of qualifying dependents on line D of your W-4; the more dependents you have, the more your total allowances, which you put on lines H and 5 of the form. The Circular E for the tax year in question has the amount that each allowance is worth.
At the time of publication, the IRS gives $3,700 per allowance annually. This amounts to $14.23 daily, $71.15 weekly, $142.31 biweekly, $154.17 semimonthly, $308.33 monthly, $925 quarterly and $1,850 semiannually. For example, you claim four allowances on line H of your W-4, which includes one allowance claimed on line A because no one else can claim you as a dependent, one claimed on line B because you are single with only one job, and two claimed on line D because you have two dependents. If you are paid weekly, each dependent is worth $71.15; therefore, your total allowances sum is $284.60 ($71.15 x 4 allowances).
The IRS withholding calculator can help you to adjust your W-4 so that the appropriate amount of federal income tax gets taken out of your paychecks. Based on the information you put into the calculator, such as filing status, whether someone else can claim you as a dependent on his tax return, and your income and withholding, it tells you if you need to submit a new W-4 to your employer. Using the calculator can help you to avoid overpaying or underpaying federal income tax.
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.