The IRS has developed a very helpful tool for determining the number of allowances employees should report on IRS Form W-4 for each of their jobs. ALL EMPLOYEES SHOULD USE THIS CALCULATOR TO FILE A NEW FORM W-4 WITH THEIR EMPLOYER. It is located at www.irs.gov/w4App. After entering information about your household, number of jobs, dates for seasonal employment, and information from your most recent paystubs, the calculator determines the filing status and number of allowances you should claim for each job. The calculator is also helpful as a mid-year review of anticipated taxes and year-to-date withhholding.
There are significant changes to the calculation of federal income taxes beginning January 1, 2018. Consequently, the calculation for paycheck withholdings is very different than it has been in recent years.
Also, there are major differences between dependents, exemptions, and allowances, and it is important to claim them properly.
- Dependents are people (usually family members) who meet certain qualifications, and therefore may qualify the taxpayer for certain tax deductions or credits.
- Exemptions are amounts deducted from total income, based on the people in your household. Beginning January 1, 2018, there is a $12,000 exemption for the taxpayer and spouse, but there are no longer exemptions included for dependents.
- Allowances are used on IRS Form W-4 to estimate an employee’s federal withholding from each paycheck so that the total amount withheld is sufficient to cover taxes owed for the year.
Dependents and exemptions are claimed on IRS Form 1040. Allowances are claimed on IRS Form W-4, filed with each employer. Many employees mistakenly fill out Form W-4 by listing the number of children they have, or by indicating a status such as “Married – 2” on the W-4 for each of their jobs, rather than following the IRS instructions. Please use the calculator and avoid difficulties and possible penalties next spring — and make sure that you are not over-withholding now. There’s no reason for you to unintentionally loan your money to the government!