If you find your tax refund is not as large as you hoped it would be, it may be time to look at your withholding allowances. The number of allowances claimed on your W-4 determines the amount of tax withheld from your income. Too little tax being withheld each paycheck trickles down and affects the amount of your tax refund or amount owed come April 15th.
How Many Allowances
How many allowances are right for you will vary from the individual as can be seen below. If you find it advantageous to receive more money throughout the year on paychecks and are okay with paying money to the IRS in April, then claiming more allowances might be a good choice. Or, if you have credits and deductions that offset the larger number of allowances being withheld, this can also be your best bet.
If you are being claimed as a dependent on someone else’s tax return you can claim 0 allowances. This option leads to more money held from your paycheck but a larger refund at tax time. Claim 0 allowance if you are single and have one job and wish to receive a tax refund. If you chose to claim 2 allowances as a taxpayer and are single with one job, you will have less money taken from your paycheck for taxes but you may owe money in April. If you are married you would also claim 1 allowance, or if you are single and working two jobs. 2 allowances are optimal if you are married and have a child. You may claim additional allowances as head of household or if you are eligible for the Child Tax Credit.
New Life Situations
New life situations can necessitate a change in the number of allowances withheld. These life events essentially break down into the categories of employment, marital status, and dependents. Likewise, if you find your refund (or lack of) to be problematic in April, it is always possible to change your number of allowances. Speak to your employer or HR department to request a new W-4 withholding form or go online to make electronic changes. These changes are not retroactive and will only affect paychecks going forward. To see the biggest results, make a W-4 switch earlier in the year.
The IRS tax calculator be found on the IRS Website here, and also has additional information for anyone considering a change to their number of allowances. If you have any questions or concerns regarding the tax implications of w-4 allowances, we encourage you to reach out to us here.