How to Calculate Withholding Allowance

Each allowance decreases federal income tax withholding.

The federal government requires that employers withhold money from their employees' paychecks for the federal income tax they will owe at the end of the year. In order for employees to more accurately withhold money, they must fill out a W-4 form that shows the number of personal allowances the employee is claiming. The more allowances claimed, the less money withheld. To determine how much each withholding allowance is worth, you need to know the annual value of the allowance and how often you are paid.

Things You'll Need

• IRS Publication 15

Instructions

1. Determine how often you are paid. Ask your employer if you are uncertain. Your pay period refers to the number of possible pay periods per year not the number of periods you actually are paid. For example, if you work a summer job where you are paid weekly you have 52 pay periods per year even if you only received 12 paychecks for the year.

2. Consult IRS Publication 15 to determine the value of each personal allowance claimed on the W-4 form. This amount can change each year based on inflation. For 2010, the value equals $3,650.

3. Divide the annual value of the personal allowance by the number of pay periods per year to determine how much each allowance reduces the amount of each paycheck subject to federal income tax withholding. Following this example, dividing $3,650 by 52 finds the value of each withholding allowance to be $70.19.

References

• IRS: Publication 15
• Investopedia: W-4 Form

Resources

• IRS: Form W-4