Review your W-4: Bigger refund or bigger paycheck?
When you start a job, your employer asks you to complete form W-4. This tells your employer how much federal income tax to withhold from your paycheck. The more allowances you claim on the form, the less income tax will be held back. This will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year). Factors to consider when choosing the number of allowances you claim include:
- Claiming allowances for yourself, your spouse and your qualifying children and dependents
- Taking an allowance for filing head of household
- Claiming more than $1,500 for child and dependent care expenses
- Working more than one job
- Having a spouse who works
Claiming fewer allowances on your W-4 will mean smaller paychecks, since more tax will be withheld. This increases your chances of over-withholding, which leads to a bigger tax refund. That’s why it’s called a “refund:” you are just getting money back that you overpaid to the IRS during the year.
“Be careful, though,” cautions Caroline Thompson, an accountant and president of Thompson Accounting and Tax, Inc. in Buffalo, N.Y. “By claiming fewer allowances, you give the federal government your money for the year, tax-free.” If you’re OK with that, utilizing your W-4 can help bring a tax refund at the end of the tax year.”
You can use a W-4 Withholding Calculator to help you estimate what allowances to claim.