One of the first documents you are given as a new hire is the W-4 asking for the "Total Allowances Claimed." Completing this form requires knowing whom you can claim as a dependent and your tax credits. Before inserting the total allowances you are claiming in the box ensure that both you and a spouse are not both claiming a child, as if enough tax is not deducted from your paycheck you can end up owing money rather than receiving a refund.
A W-4 is an IRS form used by an employer to determine the right amount of taxes to deduct from your wages as an employee. The form provides the total number of allowances you plan to claim based on your tax filing status. For example, if you plan to claim single on the IRS form 1040 EZ, you can claim one allowance for yourself plus a second allowance if this is your only employment.
Video of the Day
Federal income tax is deducted from each paycheck, called withholding, based on the number of allowances you claim. The higher the number of allowances, the lower amount of taxes withheld. Allowances are determined based on filing status, marital status, amount of dependents and available credits. Although most allowances are straightforward, some require a more in-depth analysis. Unusual situations, such as self-employment, interest and dividend income, several simultaneous employments and medical expenses can bring a change in allowances.
As you complete the W-4, you will note letters on the left from A through G. As you go down the lines, select a number to insert as it applies to your situation. If the allowance does not apply, then put a "0" or a dash in the column. For example, if you do not have a spouse, then this is not an allowance you can take. Add up the allowances on each line and insert the total amount of the allowances you are claiming on Line "G."
If your filing status changes, you should request a new W-4 to fill out. This is especially important if an allowance is no longer valid, as it can lead to an insufficient amount of withholding and you owing money to the IRS come April. Change the form to reflect the new changes, such as a new spouse or child, and submit it to your employer. The changes are required to be implemented within your next pay period.