How to Calculate W-4 Exemptions

Your W-4 form helps your employer calculate the tax to deduct from your paycheck.

Determining the proper amount of exemptions to claim on your W-4 form is critical at tax time -- if you claim too little exemptions, you may end up owing taxes in April, claim too many and the IRS may question your refund. Should they determine you willfully claimed an excess amount of exemptions, you might be faced with some stiff penalties. Fortunately, the IRS provides plenty of tools to aid you in determining the correct amount of exemptions on your W-4 form, ensuring your employer is withholding just the right amount of federal tax.

Things You'll Need

• Most recent pay stubs
• Most recent income tax return

Instructions

1. Gather data. Have your most recent pay stubs and income tax returns handy.

2. Determine your exemptions. You are entitled to claim a personal exemption for yourself, your spouse and each of your dependents.

3. Download Form W-4 from the IRS website or obtain a copy from your employer. This form will help you to compute the right amount of federal income tax to have withheld from your paycheck every year.

4. Calculate withholding allowances. The withholding allowance section comes after the section on personal information and marital status. This might also be the same as the number of personal exemptions claimed on the 1040. Answer the questions depending on your own situation.

5. Claim zero allowances at your second job if you have more than one job. By claiming zero, the highest amount of tax is withheld.

6. Claim exempt on line 7 if had zero tax liability last year and anticipate having zero tax liability this year.

7. Use the withholding calculator to verify your allowances. Print out the final summary screen to use for your Form W-4 (if needed) and keep for your records.

Tips & Warnings

• You cannot claim your own personal exemption if someone else can claim you as a dependent. Personal exemptions are phased out if your adjusted gross income exceeds a certain threshold. This threshold changes each year, so consult the W-4 worksheet for the exact numbers.

• If you have a spouse and more than one job, or if you want to itemize, use the worksheet on Page 2 of Form W-4.

• If claiming more than nine exemptions, your W-4 may be reviewed by the IRS. This is not uncommon for people with incomes over $100,000. Consult your tax accountant before filing your form.

References

• Form W-4: Employee's Withholding Allowance Certification (2011)
• IRS.gov: IRS Withholding Calculator

Resources

• Read this Article in Spanish