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How to Complete Form W-4 to Keep More Money in Your Pocket

How to Fill out Form W-4 - TaxAct Blog

Updated for Tax Year 2016

After you file your tax return, a smart financial move is to double check your Form W-4. Ensuring you have the right amount of tax withheld from your paycheck can make a big difference on your tax outcome next year.

If you have too much withheld, as many Americans do, you may not be making the best use of your money.

If you have too little withheld, you could face a big tax bill and potential penalties and interest when you file the following year.

When it comes to your finances, it’s important to take the time to learn about Form W-4 and determine if you need to make revisions and file a new one.

To help you navigate the process, below are the answers to frequently asked questions about Form W-4.

Why does my employer withhold so much?

Your employer has no discretion over how much tax is withheld from your pay.

Your employer is required to withhold the amount that corresponds with the IRS withholding tables. The table is broken down based on your pay, the time period and the information on the Form W-4 you filled out.

What’s a withholding allowance?

A withholding allowance is a number that your employer uses to determine how much federal and state income tax to withhold from your paycheck. The more allowances you claim on your Form W-4, the less income tax will be withheld from each paycheck.

The number of exemptions you should claim varies and is based on a number of factors, such as marital status, job status, earned wages, filing status and child or dependent care expenses.

Is a withholding allowance the same as a dependency exemption?

No, a withholding allowance is not a dependency exemption. However, they are loosely related.

The size of a withholding allowance is based on the annual value of a dependency exemption. For 2016, that amount is $4,050.

A mistake some people often make is assuming they can only claim as many allowances as the number of children they have. That is not true. In fact, it may be better to claim more allowances than the number of children you have if you have multiple children. However, many other factors aside from children can affect the optimum number of allowances you should claim, including additional income, deductions or tax credits.

How do allowances affect my paycheck?

The more allowances you claim, the less income tax is withheld from your pay. Fewer allowances mean more income tax is withheld from your pay.

To put it another way:

More allowances equal more take-home pay and money in your pocket.

How much will one additional allowance change my take-home pay?

The best way to determine how one additional allowance will change your take-home pay is to use the Form W-4 Withholding section in TaxAct (located in the Next Year tab) to calculate the difference.

How to Fill out Form W-4 - TaxAct Blog

To quickly estimate how much one withholding allowance will change your federal income tax withholding, multiply your tax bracket rate by the amount of one exemption ($4,050 in 2016). Next, divide the result by the number of pay periods in one year.

For example, if you are paid once a week and are in the 25% tax bracket, you will add one withholding allowance to your Form W-4.

Here’s how it works:

25% X $4,050 (the amount of one exemption) = $1,000 (the annual tax benefit of one exemption at the 25% tax bracket)

$988 / 52 weeks = $19.23

That result is around the amount your weekly paycheck should go up with a new Form W-4.

But before moving on, don’t forget your state income tax withholding as that will be affected too.

When you receive your first paycheck with the new withholding allowances, take note of how they affect your pay.

If you believe it’s not the right amount or if your circumstances change, you can always file another Form W-4. 

Why would I want to check the “Married but withhold as Single” box?

You generally have less tax withheld when you check the “Married” box. That’s because the withholding tables assume you are filing jointly with a nonworking spouse.

If your spouse has a significant income, you may need to check the “Married but withhold as Single” box to have enough tax withheld.

Should I use the worksheet that comes with Form W-4?

You can use the worksheet on Form W-4. However, there are much easier and more accurate ways fill out the form.

If you use the Form W-4 Withholding section in the Next Year tab in TaxAct, TaxAct does the calculations for you.

Is it better to have more withheld, just to play it safe?

Choosing to have too much tax withheld may feel safer and easier than figuring out how much you should have withheld and how to fill out the form to make that happen. However, there’s nothing safe about letting the IRS hold your money for a year or more. The small investment of time to make sure your income tax withholding is correct is well worth it.

Many taxpayers don’t want to risk having a tax bill at the end of the year – no matter how small. If that’s how you feel, adjust your W-4 accordingly and plan for a small refund.

You can still celebrate when you get your refund check, plus you can be happy knowing you didn’t have too much tax over withheld.

How to Fill out Form W-4

How do I file a new Form W-4?

Ask for a new form from your payroll department or get one from the IRS website.

Additionally, if you use TaxAct to calculate your withholding allowances, you can print a blank Form W-4 when you are done.

After you update the new form, take it to your payroll department. Do not send it to the IRS.

Why shouldn’t I have more tax withheld and receive a big refund at the end of the year?

In order to make the best use of your money, you should try to pay the right amount of tax throughout the year by having the correct amount withheld.

For instance, if you have an emergency, the money will be in your bank account – not in the IRS coffers.

Essentially, you’re giving the IRS one big, interest-free loan. Look at it this way, if you have credit card debt, you may be paying high interest rates while trying to pay it off.  The IRS pays no interest to you for the money you give them by having too much tax withheld.

You wouldn’t overpay your mortgage, electric bill or any other expense by thousands of dollars just so you can get a big refund at the end of the year. Why would you want to do that with your taxes?

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

Comments

  1. Shmonica Cureton says:

    I get paid monthly making 10hr and my employer was taking out 300 n 400 out my check I have my two kids as dependents will anything go wrong for me

    • Hi Schmonica! The best advice we have is to file a new W-4 with your employer if you want more money back in a refund. Thank you!

  2. Ashley Morehouse says:

    Hi. I am active duty military, and I am divorced have 3 children. I recently changed my tax exemptions to reflect 4. My paycheck actually went down though. Why is that?

    • Hi Ashley! Our best advice is to talk to your employer about this to figure out what is going on. They will be able to tell you if you need to make adjustments or provide an explanation as to what amount is being taken from your paycheck. Thanks!

  3. Hello
    I’m single with no children. I recently bought a home and my mother will be living with me ( she’s unemployed and almost retired ) I would like to change my W4 so that they don’t take too much out of my paycheck but would like a decent return. I will claim head of household and one dependent ( my mother ) so how many allowance’s should I put down on the W4?

    • Hi Mario, The best way to determine how many allowances you should take is by following the calculations on Form W-4. Since allowances are not determined by just the number of dependents you have, it’s hard for us to say exactly what you should claim since we don’t know your entire tax and financial situation.

  4. Cher Greening says:

    Is it true or false that if you claim 9 or more exemptions on your form W4 that you will be flagged and/or additional paperwork to complete? I am considering claiming 15 exemptions for 5 months and then reducing at a later date, I was laid off and out of work for 8 months and I need to catch up on my bills.

    • Hi Cher! Thanks for stopping by! You will not have to complete any additional paperwork if you claim 15 exemptions. However, the IRS does review employee withholding compliance, and may end up asking your employer to send certain Forms W-4 to them if they want to review further. Thank you!

  5. We are married. I work, he is on social security disability. No children at home. Want refund. We file married filing jointly. What do I do?

    • Hi Laurie! The best way to determine how many allowances you should take is by either following the calculations explained in the blog post or using the W-4 calculator within on our product to help you determine what works best for your family. Since everyone’s tax/income situation is different, we aren’t able to give a suggestion based on this information alone.

  6. 2 jobs with kids. single head of house hold claim 2.is that ok? want taxes taken out but want to keep most of pay check.

    • Hi Laura,

      The goal to keep more of your paycheck is a good one versus having too much withheld and giving the government an interest free loan for the year. Trying to find that balance is definitely something you should strive for. That being said, the more allowances you claim, the less income tax is withheld from your pay. This means more money in your pocket during the year. A quick and easy way to determine your exemptions/allowances is to use the W-4 calculator within our product. Otherwise, you can download Form W-4 and complete the top portion to calculate how much you want to withhold. Being that the number of allowances you should take is determined on a variety of factors than just your dependents, we can’t say with confidence that 2 is the best number since we don’t know anymore about your situation. Complete Form W-4 or register to use our calculator to find the best answer. Let us know if you have any other questions!

  7. Hello
    I’m single I have 1 job and I live with my parents. Last year I was an unemployed student, and in Feb 2016 I started working to pay off my loans. How many allowances should I claim?

    • You can figure this out by completing the personal allowance worksheet on Form W-4. Based on your description, you would have two allowances. One allowance because you can’t be claimed as a dependent and a second allowance because you are single. However, keep in mind, if your parents claim you as a dependent you would likely only claim one.

  8. Im single with no kids and have my own apartment. So do i claim single, 1 and head of house hold? or just single and head of house hold. I feel like so much is being taken out and now I do 1, single head of house

  9. Yesenia T says:

    Hi i have 3 children and dad stays home, while I work, I am having a hard time filling my w4 form. At first I did zero allowances seeing that it was way to much taxes taken out of my biweekly check, I put 2 allowances, should that be ok?

  10. If I have extra federal taxes withheld from my paycheck will I get it all back at the end of the year when I file my taxes?

  11. John Ferrell says:

    I am claiming 7 on my work taxes and 2 when filing taxes is that OK?

    • Yes you can do that but you are most likely going to end up paying taxes by withholding that many. This person in the article makes some valid points, but neglects the fact that some people have more withheld so as to make a large purchase at tax time. It may not give you any interest, but $20 will disappear quickly and savings can be gotten to. As a tax person it should go by each individual person and what they want to be able to do. IF you fill out the W4 and answer all the questions, you will probably find that you will not withhold enough taxes for you. If you don’t want or need that larger refund follow the above advice. If you prefer to allow the goverment to hold onto your money for the year and get a larger refund so that you are able to make a large purchase that it is hard for you to save for, then claim fewer on your W4. Also the max you can claim without permission is 10 on the W4.

  12. Rosie donner says:

    I file head of household spouse stays at home 3 children how many allowances should I be filing I want to pay in as much as I can to get a good refund and still earn enough to support family?

  13. I’m single, and I have one job (no children). Can’t I claim 2 allowances? I claim one allowance for my state taxes (Wisconsin).

  14. I have a child care business and I haven’t paid any taxes as of yet which I started ,my business the first of the year , which I get paid cash for the child care what form do I have to fill out for my taxes? Also, what services do you offer to help me fill to file this coming yea?

  15. morgan kerns says:

    Hi I am trying to figure out how to fill out the line about child tax credit on my w-4 form. Of I have 2 children what number would I put down?