Tips & advice on getting your finances back on track.
Whenever you get paid, a certain amount of income tax is automatically withdrawn (or withheld) from your paycheck and turned over to the IRS. The number of allowances you claim determines the amount of tax withheld from your pay.
You need to know the number of allowances to claim when you’re filling in a W-4 form at the start of a new job or after a significant life event such as the birth or adoption of a child, or a marriage.
Finding the right number of allowances for your situation is important. If you claim too many allowances you may owe the IRS some money at the end of the tax year (and possibly pay a penalty for your error). But…if you take fewer allowances you will receive that money back as a tax return.
The more allowances you claim, the lower the amount of tax withheld from your paycheck. Use the Personal Allowances Worksheet attached to the W-4 form to calculate the right number for you.
Remember, if you’re in any doubt, check with your tax professional.
Let’s look at some examples:
A single person who lives alone and has only one job should place a 1 in part A and B on the worksheet giving them a total of 2 allowances.
A married couple with no children, and both having jobs should claim one allowance each. You can use the “Two Earners/Multiple Jobs worksheet on page 2 to help you calculate this.
Part E of the worksheet, is for those who can claim as Head of Household. Head of household can only be claimed if you are unmarried and pay more than 50% of the costs of keeping a home for yourself and your dependents.
A married couple can combine their incomes and file a single joint account.
For example, a couple with only one single bread winner should claim 2 allowances and file a joint tax return.
If you have children, you may be able to claim them as dependents on part D.
Depending on your income, you can claim up to $1000 per child. So long as they are citizens or legal residents, under 16, live with you and not providing 50% of their own financial support. Follow the instructions listed in Part G to know how many child allowances to claim.
Add up each of the three worksheets separately and fill in the values on the W-4 form where indicated.
That’s it! You’re done. Give the form to your employer and the correct amount of tax should be withheld from your pay check.
Lori Stratford is the Social Media Strategist at Navicore Solutions. She promotes the reach of Navicore’s financial education to the public through social media and blog content.