Since World War II, the federal government has required that employers withhold money from their employees’ paychecks throughout the year to pay federal income taxes. Employees determine the amount of withholding when they fill out a W-4.
Understanding what tax allowances are can save you from potentially getting hit with an unexpectedly large tax bill when you file your taxes. You also want to avoid the interest and penalties imposed by the IRS.
What Are Withholding Allowances?
To determine how much to withhold from your paycheck, your employer uses the amount of your paycheck and the information you provide on your W-4. In addition to indicating whether you will file single or jointly, you must also state how many tax allowances you are claiming. Each tax allowance you claim on your W-4 reduces the amount of your paycheck subject to income tax withholding.
Minimum Tax Withholding Required
Generally, you must have tax withholding equal to at least 90 percent of your tax liability when you file your return or 100 percent of your tax liability from the prior year. You also meet the tax withholding requirements if you owe less than $1,000. If you don’t have enough income withheld during the year to meet the minimum requirements, you might owe interest and penalties when you file your tax return.
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How Many Allowances Should I Claim?
To figure out the maximum allowances you should claim, use the IRS tax withholding calculator or one of the following worksheets on your W-4 or the IRS tax:
- Personal Allowances Worksheet
- Two-Earners/Multiple Jobs Worksheet
- Deductions, Adjustments and Additional Income Worksheet
The Personal Allowances Worksheet can help you determine how many allowances you can claim. Below is a table that shows you how many allowances each status is inherently allowed. However, if you belong to one or more of these scenarios, you can combine your allowances.
|Circumstance||Number of Allowances You Can Claim|
|Married filing jointly||1|
|Head of household||1|
|Married filing separately, and have only one job||1|
|Married filing jointly, have one job and spouse doesn’t work||1|
If you’re wondering how many tax withholding allowances you should claim if you’re single and you have multiple jobs, or if you’re married and both you and your spouse work, complete the Two-Earners/Multiple Jobs Worksheet and claim all of the allowances on the highest-paying job.
If you plan to itemize your deductions or claim substantial adjustments to income, use the Deductions, Adjustments and Additional Income Worksheet. But, if neither of those applies to you, use the Personal Allowances Worksheet.
Make sure you’re not accidentally committing tax fraud by claiming the wrong number of allowances. If you claim the maximum withholding allowances, your withholding should mirror what you actually owe, meaning you’ll only owe a little or get a small refund when you file your taxes.
You don’t have to claim all of the allowances you’re entitled to, however, if you like receiving a large refund. By claiming too few allowances, you’ll have too much withheld from your paychecks during the year. But, you’ll get that money back in the form of a larger tax refund when you file your return.
When to File a New W-4
You can file a new W-4 at any time to adjust your income tax withholding. Whenever you have a major life event or a significant change in your income, especially if you have additional income that isn’t subject to withholding, you should review your allowances. For example, if you get married or divorced, start a new job or side hustle, make sure to revisit your withholdings.
Click through to learn about the tax year dates you need to know.
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Taylor Bell contributed to the reporting for this article.