Typically, if you earn an income, you are required to pay taxes on it. How much tax you must pay is determined by your income, your deductions, your credits and your exemptions. By calculating your tax allowances, you can get a better idea of what your tax liability will be. Allowances can also be adjusted so that you can have more or less taxes taken from each check. Detail your allowances on an IRS form W-4.
Download a Form W-4. See Resources.
Fill out the Personal Allowances Worksheet. Give yourself one point for yourself, your spouse and each qualifying dependent. Give yourself a point if you will have at least $1,900 in dependent care expenses. If you intend to claim the Child Care Tax credit, give yourself another point. Add up your points. This is your total number of allowances.
Fill out the Deductions and Adjustments Worksheet, in addition to the Personal Allowances Worksheet, on page two of your W-4, if you intend to itemize your deductions. Refer to Worksheet 2 and 8 in IRS Publication 919 for an estimate of your itemized deductions. This is your total number of allowances.
Fill out the Two-Earners/Multiple Jobs Worksheet, in addition to the Personal Allowances Worksheet, if you have more than one job or both you and your spouse work and your collective income will exceed $40,000. This is your total number of allowances.
Recalculate your withholdings if you experience any personal or financial changes, such as divorce or change in income.
You can get a good estimate of your tax liability using the worksheets found in IRS Publication 919.
If after calculating your expected tax liability, you find that you will owe money, you can elect to include a portion of the money owed on line six of your W-4. For example, if you expect to owe $2,000, divide this by the pay periods remaining in the year and include that amount on line six.