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

One of the smartest things you can do for your personal finances is to make sure you are having the right amount of tax withheld from your paycheck.

If you have too much withheld, as most Americans do, you’re not making the best use of your money.

If you have too little withheld, you’ll face a big tax bill, and possibly penalties and interest, at tax return filing time.

Take the time to learn about Form W-4 and file a new one if you’re having too much or too little income tax withheld from your pay.

Here are some frequently asked questions about Form W-4:

Why does my employer withhold so much?

Your employer has no discretion over how much they withhold from your pay.

Your employer must withhold the amount from the IRS withholding tables, 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 number of exemptions you should claim may vary from zero to as many exemptions as necessary to have the correct amount of income tax withheld from your pay.

Is a withholding allowance the same thing as a dependency exemption?

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

The size of a withholding allowance is based on the annual value of a dependency exemption. For 2014, that amount is $3,950.

Some people assume they can only claim as many allowances as they have children. This is not true.

Having more children probably means you need to claim more allowances, however other factors can affect the optimum number of allowances you should claim, such as other 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 withheld from your pay.

To put it another way:

The more allowances you have = more take-home pay (more 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 (in the Next Year tab of TaxAct Online ).

To quickly estimate how much one withholding allowance will change your federal income tax withholding, multiply your tax bracket rate (click here to calculate your tax bracket rate) by the amount of one exemption ($3,950 in 2014) and divide the result by the number of pay periods in one year.

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

Here’s how it works:

25% X $3,950 (the amount of one exemption) = $988 (the annual tax benefit of one exemption at the 25% tax bracket)

$988 / 52 weeks = $19 (about the amount your weekly paycheck should go up with a new Form W-4)

Don’t forget that your state income tax withholding will be affected, as well.


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

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

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 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 to determine how to fill out the form.

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

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

Having way too much tax withheld may feel safer and easier than figuring out how much you should actually 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 you make to make sure your income tax withholding is correct is well worth your time.

Some taxpayers really, really 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, plan for a small refund.

You can still celebrate when you get your refund check, without having so much tax overwithheld.

How do I file a new Form W-4?

You could ask for a new form from your payroll department, or get one from the IRS website.

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

Take the new Form W-4 to your payroll department. Do not send it to the IRS.

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

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

If you have an emergency, the money should be in your bank account – not in the IRS coffers. Tweet this

If you owe consumer debt, such as credit cards, you may be paying high interest rates on one hand while the IRS pays no interest at all to you.

You don’t overpay your mortgage, your electric bill, or any other bill by thousands of dollars just so you can get a big refund at the end of the year.

Why would you do that with your taxes?

When was the last time you adjusted your income tax withholding by filing a new Form W-4?

TaxAct Free Federal Edition finds all the deductions and credits you are entitled to for the largest possible refund. It’s the most complete free tax filing solution for everyone. Start free now or sign into your TaxAct Account .

Category: Taxes

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