Understanding W-4 Allowances Can Be A Reality

Understanding allowances on your W-4 form can be complicated and frustrating. To fully comprehend how many allowances you should claim, it’s important to know what a W-4 is and why it’s important. A W-4 is a tax form required by the IRS. Your W-4 allows your employer to withhold the proper amount of federal income tax from your paycheck. The withholding amount is determined by the number of allowances you claim. What is an allowance? This is where your W-4 starts to get really complicated. Allowances depend on, and can be, many things, including: how many jobs you have, if you’re filing your taxes as “married”, if you have children, if your parents still claim you on their tax returns, and more. The IRS knows this is complicated, which is why page one of your W-4 is a worksheet to help guide you through the process. If you still need help, we recommend using the PaycheckCity W-4 Assistant to help you determine how many allowances you should claim. In general, the more allowances you claim the less federal income tax your employer will withhold from your paycheck. If you have not properly claimed your allowances, and your employer did not withhold enough to cover your tax liability, you will owe money. Conversely, the less allowances you claim the more federal income tax is withheld from each paycheck. If filed improperly, you will see a refund with your tax return. There are many ways you can use this money, but remember when the government has it, you’re not making any interest. We always stress the importance of speaking with a licensed tax professional about your unique tax situation.