By: Revanche

A deep breath is in order and a change of subject: My allowance(s)

September 19, 2006

Keeping in mind that your exemptions and personal allowances are two different things, the following guidelines are the key factors in determining how many allowances you should claim during the year:

To understand Form W-4, you must understand allowances. Think of allowances as cash in your pocket at the time that you receive your paycheck. The more allowances you claim, the less taxes are taken from your paycheck (and the more cash ends up in your pocket on payday). For example, you can maximize the amount withheld from your paycheck to ensure that you have enough tax withheld to cover your tax liability by claiming zero allowances. This will reduce the amount of cash you take home in your paycheck. The following factors determine your number of allowances:

• The number of personal and dependency exemptions that you claim on your federal income tax return
• The number of jobs that you work
• The deductions, adjustments to income, and credits that you expect to take during the year
• Your filing status
• Whether your spouse works

To claim the correct number of allowances, you should complete Form W-4’s worksheets. These include a personal allowances worksheet, a deductions and adjustments worksheet, and a two-earner/two-job worksheet. IRS Publication 505 (Tax Withholding and Estimated Tax) explains these worksheets.

I should have been claiming 1 for myself, 2 for the parents, and a 4th for claiming head of household so that my tax withholding would be lower throughout the year. As it is, I’ve overwithheld for about nine months so I’ve guaranteed myself a refund for next year. Ah well, could be worse!!

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