What is a W-4?
A W-4 form is the tax form any W-2 employee will receive once hired and are set to begin their employment. It will usually be given by someone in the Human Resources Department.
A W-4 form will look similar to a W-2 at a glance but this form is different it will determine the correct amount of tax to be withheld from your paychecks. The form will begin asking all the basics such as name, social, address etc. but once we get passed that you will begin to see them ask "What is the Total number of Allowances you're claiming?" I know what you're thinking "Allowances" is this more money for me? Lol sadly not.
"Allowances" Refers to an exemption that reduces how much Income Tax is deducted from a paycheck. It gets tricky though because the more allowances you claim, the less income tax will be withheld from a paycheck; the fewer you claim, the more tax is withheld.
How does it work and What should I Claim?
The amount of allowances you choose to claim is generally based on your filing status (Single, Married, *MFS,* HOH) The IRS provides a rough formula for how many allowances each taxpayer should claim in order for it to balance out at the end of each year. (Link) In addition to your filing status allowances are based on personal situations like having children, working more than one job, what you expect your income to be from that job or whether you itemize your personal deductions or claim the standard deduction.
Here are a few examples:
Lets say you're single with no children and you plan to claim the standard deduction you would claim "1" allowance for yourself, and you can claim "2" allowances if you are single with only ONE job.
Or if you are single claiming one child you would claim "1" allowance for yourself and "1" for your dependent for a total of "2" If you had two children you would claim "3" allowances total for yourself and children and so on and so forth.
Married Filing joint and will take the standard deduction you would claim "2" allowances one for self and one for spouse and they could also claim a "3" if only one spouse is working and the other spouse doesn’t work or they have a job bringing in $1500 or less.
*But remember the more allowance you claim the less tax they take which isn't always great depending on the situation.
It going to get more complicated as you switch filing statuses and add more children and it should be based on income at that point. If you can afford to pay taxes ..PAY TAXES!
The IRS also advises that If you have more than one job you should claim the lowest Allowance from the highest paying job.
What does Exempt Mean?
Yes, You can be Exempt from withholding.
Should you do it?
It's NEVER the smart option.
Even if you have no tax liability.
I always tell people the government is basically saying :
"Let me borrow something from you and ill give it back to you come Tax Season, but if you don’t you'll just owe me what I wanted to borrow plus tax :)
Either way you are going to have to pay them something and the easiest way is letting them just take it out your checks all year..
The worst thing you can do is file exempt for years and years and never pay the taxes you owe and then one day BOOM you are now blocked from filing exempt at any job! ( yes, they have the power to block you from exempt) now they are garnishing your wages and you owe them so much. I've seen it happen . Its really a setup because they don’t teach us anything about anything in school, but anyways lets do right but this cruel world. (If that makes sense.)
Updating your W-4 ?
You should update your W-4 at the top of each year and change it to reflect you currently you should also do it during any major life changes such as marriages or expanding the family , gaining or losing a job etc and adjust it to where its comfortable for you and your current life and financial situation.
You should be able to go to HR at anytime in the year and request to make changes to your W-4
My personal opinion would be for single taxpayers with no children making a nice amount of money I think you should claim "0" if you are able and let them take as much taxes as they can and you will have No Tax liability you can also expect a nice refund during the season.
Anyone who can claim"0" should but I wouldn’t recommend claiming passed "3" unless you actually have dependents to offset the tax liability.. Meaning unless you have children that are worth a certain credit on taxes do not claim more allowances that you should.
#SN I know a lot of people file exempt for 6 months and then change it the rest of the year .. NEWS FLASH that’s just as bad as claiming exempt, not to mention most of you forget to switch it back :x
Let's ditch the Idea of filing exempt ever and pay something. Even if you claim a 4 six months and a 2 for 6 months that’s much better.
The Tax Lady
*Married Filing Separate
*Head of Household