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Step 1
Complete the "Personal Allowances Worksheet" at the top of your W-4 form. This will help you understand the purpose of this form. The worksheet asks you to add up all of your dependents including yourself to help your employer decide how much should be deducted from your regular paycheck to cover taxes. Think of allowances as deductions---when you do your taxes each dependent will count as an exemption of $3,500 (this may change by tax year) and reduce the amount of your income that can be taxed (called "Taxable Income" on your tax forms).
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Step 2
Include one allowance if you can't be claimed as a dependent on another person's tax return. The only situation where you would not be able to claim yourself here is if your parents or another party supports you and claims you as a dependent.
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Step 3
Enter an additional exemption if you are single or married and there is only one person with a job in the household. If you have a second job (or your spouse has a job) that brings in less than $1,500 you can enter an additional allowance here. Two allowances is the maximum you can take as a single person with no dependents to minimize the risk of owing money at the end of the tax year.
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Step 4
Add another allowance for your spouse and each of your children. If you support someone other than your immediate family, such as a senior citizen, this may count as another allowance. See "Resources" for information on who qualifies as a dependent.
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Step 5
Add an allowance if you file as head of household, as this status comes with additional tax benefits. You can also add another allowance on the worksheet if you spend more than $1,800 a year on child care (that figure may vary by tax year).
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Step 6
Determine your child tax credit allowances. Include two credits per dependent child if you make less than $61,000 as a single person or less than $90,000 as a married person. Subtract one allowance from the total figure if you have three or more children. If you make between $61,000 and $84,000 as a single person with children ($90,000 to $119,000 if married) add one allowance per eligible child in this section. Also, in this income bracket add one more allowance to the total if you have six or more children.
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Step 7
Add up all of your allowances to determine the amount that you should enter on line five of your W-4. If you want to have an additional amount taken from your check (sort of as a way to save without getting interest) you can place that amount on line six.
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Step 8
Leave line seven blank unless you were entitled to a refund of all your tax withheld in the previous year due to the fact that you owed no tax and you expect the same thing to happen this year. If these two conditions apply to your situation you can write the word "exempt" to avoid having any of your taxes withheld from your regular paycheck. This is a very rare case.
