You must pay tax to the IRS but your W-4 form lets you decide when to pay it.
When beginning a new job, you may remember your employer handing over a W-4 form (along with the pile of other paperwork) to fill out. Your W-4 form determines how much tax is withheld from your income based on how many allowances you claim.
You can claim a certain number of allowances depending on your life situation. Allowances conclude how little or how much your employer will withhold from your paychecks throughout the year for taxes. In other words, the size of your tax refund or tax due to the IRS after filing your taxes. You can claim as little as zero allowances or as many as apply to you and your tax situation. The ideal situation is to break even; no tax owed and no tax refund.
How many allowances should you claim?
The details to your specific situation (such as your filing status, number of children, etc.) will determine how you complete your W-4.
If your parents claim you:
If you’re being claimed as a dependent on someone else’s tax return, you’ll most likely want to claim zero allowances. This is because your parents are claiming you as an exemption, rather than you claiming yourself.
If you’re single:
- and working one job: If you definitely want a refund, claim zero. However, you will have more tax withheld from each paycheck, meaning less take-home pay. Claim one allowance and you will most likely see a refund after filing your tax return, without having the maximum tax withheld from your pay. Claiming two allowances will most likely get you the closest to your tax obligations, but when everything is said and done you may end up owing the IRS a small amount.
- and working two jobs: If you work two jobs and are filing as single, ideally you would claim one allowance at each job. If you already claimed zero at one job, claim two allowances at the other job. If you want a larger refund when tax season rolls around, claim one allowance at one job and zero at the other.
If you’re married:
- with no kids: Claim two allowances if your spouse does not work. If your spouse does work, each of you should claim one allowance.
- with kids: If you’re married with one kid, you and your spouse combined should generally claim three allowances. For each additional child, add one allowance. That being said, if you’re married with two kids, you and your spouse would claim a total of four allowances, meaning each of you would ideally claim two allowances on your W-4 forms.
If you’re head of household:
- You can claim additional allowances if your filing status is head of household. Therefore, if you’re single with two kids and eligible for the head of household filing status, you would claim four allowances on your W-4.
Claiming less allowances is always an option.
Your W-4 form may be the only leeway that the IRS gives you. Take advantage of that. You get to decide how much or how little you pay them throughout the year. The actual total tax you pay does not change; just pay now or pay later. If your circumstances have you adding up a high amount of allowances, you can always claim less and get more of a refund after filing. Some taxpayers actually prefer to pay more over the course of the year instead of getting more in their paychecks. You can even claim zero allowances so that the maximum is withheld. In most cases, this will guarantee you a tax refund from the IRS since more than necessary was withheld throughout the year.
Are you still confused?
Allowances can be difficult to determine. When in doubt, follow the W-4 worksheets available to you. They’re not required (you don’t even need to give them to your employer) but they’re there to help you. Everyone should complete the Personal Allowances Worksheet on the first page of the W-4. Those who plan to itemize deductions should complete the Deductions and Adjustments Worksheet on page 2 and those with two jobs or a spouse who works should complete the Two-Earners/Multiple Jobs Worksheet.
If you still need help, the IRS Withholding Calculator tool will help you determine your allowances.
When you file your return, make sure your withholding more or less lines up with your tax obligations. If you have a big tax bill after filing, you’ll want to lower the amount of allowances on your W-4 for next year.
You Can Adjust Your W-4 Allowances
Remember to adjust your W-4 if there are major changes in your life. If you get married or divorced, or gain or lose a dependent, you will need to update the number of allowances you claim. Likewise, if you become or cease to be someone else’s dependent you will likely have to change your withholding. Your W-4 changes will go into effect immediately for the following pay period and can be done as often as necessary.
Withholding is something everyone needs to pay attention to. Whether you’re looking ahead to the upcoming tax season or filing back tax returns online, it’s important to choose wisely.
Not happy with your refund amount after filing your taxes? Think about changing the number of allowances on your W-4.