Understanding Your W-4

The W-4 form is where you tell your new employer how much you expect to owe in taxes next year. You do this by claiming allowances.  The more allowances you claim, the less money your employer will withhold for taxes.  You get one allowance for yourself, one for your spouse, and one for each dependent you plan to report on your tax return. In addition there are other allowances available for specific expenses depending on your situation.

Do I need to fill one out?

Yes. A W-4 form is something everyone who works needs to fill out every year. The government adjusts how much in taxes they take from your paycheck based on how many people in your family you need to support. These are called allowances. So, if you have a spouse and two kids, you would mark that you have four allowances and you will have less taxes taken out of each paycheck so you can afford to support your family throughout the year. If it’s just you, you would put down that you have one allowance, and so forth.

How many allowances should I claim?

Claiming allowances is a step to take seriously. You have the option to claim no allowances at all. If you claim too many allowances on your W-4 you may end up owing money when you file taxes.  If you do not claim enough allowances you will likely receive a refund. But you will also take home less pay monthly.  So you may choose either strategy.  If you claim many allowances you might be better able to meet your bills each month, but you may end up owing at tax time which can lead to garnishment or legal action.  If you claim fewer allowances you will not be taking home as much pay each month, but you might receive a lump sum at the end of the year which you can use to pad savings or make a large purchase.