How to Fill Out Your W-4 Form

If you claim too many allowances, you might have a huge tax bill at the end of the year. You might even have penalties.

When you get a new job, you’ll have to fill out a two-page W-4 form to decide how much federal income tax will be withheld from your paycheck each pay period. Many people struggle with filling out the form because they don’t know how to estimate their paycheck withholdings.

How to Figure Out the Correct Number of Withholding Allowances

Your W-4 form has two parts. The top part of the page is a worksheet that is designed to help you figure out the number of allowances. This is based on your marital status, number of jobs you have, and more. After filling out the worksheet, you may feel confident enough to fill out the bottom part of the page—which is the actual W-4 form—and turn it into your employer.

However, the worksheet on the W-4 document doesn’t go into a lot of detail. If you still aren’t sure after filling out the worksheet, then try the IRS withholding calculator or the TurboTax withholding calculator. Each of these calculators goes into more detail. The TurboTax one is especially nice because it lets you use a slider tool to see your refund/tax bill based on how many allowances you choose.

Consequences of Filling Out Your W-4 Incorrectly

You can claim anywhere between 0 and 10 allowances, but there are lots of factors that go into how many you should claim. Here’s what happens if you don’t input the right number on your tax form:

Not Claiming Enough Allowances

If you claim too few allowances—perhaps you put 0 or 1 in your total number of allowances (line 5 on the W-4) then you will have a lot of money withheld from your paycheck each pay period. You will probably get a big refund at the end of the year. This may not be a huge problem in your eyes, but it does mean that you don’t get that money until the end of tax season. In other words, you’re basically giving Uncle Sam an interest-free loan all year.

Claiming Too Many Allowances

If you claim too many allowances, you might have a huge tax bill at the end of the year. You might even have penalties. Let’s say you claim 4 allowances when you really should have only claimed 2. Then, when tax time comes around, you owe thousands of dollars that you simply don’t have. Best-case-scenario, it’s a hassle. Worst-case-scenario, you can’t pay the bill on time and end up incurring late penalties.

Not Sure How Many Allowances to Claim?

If you’re stuck between 2 numbers, then pick based on what makes most sense to you. Maybe you’d rather have a bit of a refund, so you should pick the smaller number. Maybe you don’t mind paying some taxes… pick the bigger of the two. There’s not one “RIGHT” choice. The goal is to get close to breaking even, but it’s not going to be perfect. Having to pay a little at tax time, or having a bit of a refund, is not a big deal.

Will Claiming the Wrong Amount of Allowances Influence the Total Tax I Pay?

No, the number of allowances you claim does not change the total tax you pay (unless, of course, you end up getting late penalties). You will still pay the same total amount. It just depends on whether you pay it throughout the year or pay it at tax time.

About the Author

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Joseph A. Davis, EA, CDFA®BFA™

Director

With over 16 years in the financial services industry, Joe knows his stuff. Cursed with the desire to be a serial entrepreneur - Joe is a real estate investor & managing partner for Davis Financial LLC, Utah Divorce Services and Davis Tax & Associates. He most recently became the director for Find a CPA Today. Joe is an Enrolled Agent, EA, & CDFA®, BFA™. He also holds FINRA licenses 7, 66 & 24. When Joe isn't trading, looking for new real estate investments or obsessing over his work - you can find him at home, playing with his children & probably mowing his lawn.

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