Form W-4

• All employees must complete a form W-4 to tell the employer how many personal allowances that person claims. The purpose of allowances is to make the withholding as accurate as possible, so that you receive only a small refund or owe a small amount when you file your taxes at the end of the year. Each allowance claimed reduces how much of your paycheck is subject to federal income tax withholding. However, your personal allowances claimed on your W-4 form do not affect your federal income taxes when you file your return.
  
  

Calculating Your Allowances

• The form W-4 has several worksheets to help you determine the most appropriate number of allowances for you to claim. The most commonly used is the personal allowances worksheet. However, if you plan to claim a large number of deductions, you will get a better estimate using the deductions and adjustments worksheet. If you work multiple jobs, or have a working spouse, you will get a better estimate using the two-earners/multiple jobs worksheet.
  
  

Selecting Your Allowances

• The Internal Revenue Service does not mandate that you claim all the allowances that you are eligible for on your form W-4. Some people prefer to claim fewer allowances so that when they file their income taxes, they receive a large refund. However, when you have lots of extra money withheld, you are effectively giving the government an interest-free loan because the government gets the money when you earn it and doesn't give it back to you until after you file your income tax return.
  
  

Warning

• Do not claim more allowances than you are entitled to claim on your W-4 form so that you have less money withheld than you need to cover your taxes, also known as underwithholding. If you do not have at least 90 percent of what you owe withheld during the year, the IRS will charge interest on the unpaid portion. In addition, you could face both criminal and civil penalties if you knowingly claimed extra allowances.