About W4 Allowances?
Employers are required to calculate and withhold taxes from the wages they pay workers. For this reason you must complete a W4 form when you start a new job. The W4 provides information your employer needs to correctly figure the amount of taxes to be withheld from your paycheck. From time to time you may need to file an updated W4 form. For example, if you become a parent you can claim an additional withholding allowance
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Identification
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A W4 allowance or withholding allowance is a specified amount of money that is not be subjected to withholding of federal income tax. All of your wages will still be subject to Medicare and Social Security taxes. W4 allowances only affect federal and sometimes state income taxes.
Function
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Normally you may claim W4 allowances for yourself, for any dependents, if you are head of household and if you have certain child care expenses. The amount of one allowance is based on a yearly figure ($3,650 in 2010) divided by the number of pay periods in the year. For example, if you are paid weekly, in 2010 you divided $3,650 by 52 for a weekly W4 allowance amount of $70.19.
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Rules
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If someone else claims as a dependent you cannot claim yourself. You may claim fewer than the number of allowances you are entitled to but you may not claim extra W4 allowances. You can ask for additional taxes to be withheld as well. Your employer can only go by what is on your W4 form. If your marital status changes or your number of dependents changes you should file a new W4 form.
Exempt
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Some individuals may be exempt from income tax withholding. You can claim “Exempt” only if you had no tax liability last year and don’t anticipate a tax liability this year. In addition you must have less than $950 in earned income and less than $300 in unearned income (amounts as of 2010). You cannot claim exempt status if someone else claims you as a dependent. Some young people mistakenly think being a student is sufficient to make them eligible for exempt status, but that is incorrect. You must meet all of the criteria.
Considerations
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Many individuals work a second job. Others have income that isn’t subject to employer withholding--investment income, for example. If you fall into either category, consider claiming fewer W4 allowances or even requesting that an extra amount be withheld from each paycheck. This isn’t required. However, it will prevent you from facing a large tax bill when you file your taxes.
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References
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