The number you claim on a W-4 form tells your employer how much to automatically deduct from your pay based on an equation of your likely maximum tax liability. The higher the number, the more of a deduction you are expected to have and thus the less they take out.
Correct Employer Tax Withholding
Putting 0 there when you have two dependents means that you are likely overpaying your taxes which will be refunded when you file. If you put too high a number in there you can end up underpaying which can be a difficult expense and if you underpay too much can result in penalties, but if you put the right number on the W-4 and still underpay too much, you can usually get those penalties waived (and you are an extremely unusual person).
What is the importance of state and federal tax allowances?
If you are living paycheck to paycheck, it can make a difference. Some people also have a philisophical objection to the government holding onto the money. Regardless, you won’t get into any trouble having them deduct too much.
Steps to Filling out a W-4
You’ll need to following four simple steps when filling out your W-4 Form:
- Fill out your personal information (Name, Date of Birth, Address, Marital Status)
- Know the number of personal and dependency exemptions you are claiming on your tax return.
- Based on the number from step 2, use that number to help determine your number of allowances.
- Don’t forget to sign the W-4 and turn it into your employer!
The allowances you should claim while filling out a W-4 if you are single will differ from the allowances you claim if you are married, have kids or whatever the case may be.
Exempt from Federal Tax Withholding
If you wish to claim exempt, complete the federal Form W-4. You may claim exempt from withholding California income tax if you did not owe any federal income tax last year and you do not expect to owe any federal income tax this year. The exemption is good for one year. If you continue to qualify for the exempt filing status, a new Form W-4 designating EXEMPT must be submitted by February 15 each year to continue your exemption. If you are not having federal income tax withheld this year but expect to have a tax liability next year, you are required to give your employer a new Form W-4 by December 1.