Help with Form W-4 and what Allowances Mean for Your Taxes

Learn what allowances mean on your W4 form


Like many tax forms, the W-4 can be intimidating or confusing for those that are not familiar with it. However, it's an important form to understand because the number of allowances you elect to take will affect your net (take-home) pay and what happens when you file your personal income tax return.

Allowances represent general taxpayer situations; they are used to estimate approximately what your tax obligation will be so that the appropriate amount of taxes are withheld from your paycheck each pay period. This enables workers to pay-as-they-go, thereby eliminating a huge tax bill at the end of the year.

The goal of filling out Form W-4 is to determine the proper number of allowances for your personal tax situation. For most people, this means making sure they will not owe any money to the IRS at the end of the year - and perhaps get a little money back. However, because there are so many factors that affect personal income tax liability, it is impossible to manage this with precision.

In fact, the IRS says taxpayers should allow for error of up to $500 meaning you may get a refund of a few hundred dollars or you may be required to make a tax payment of a few hundred dollars). If you dont like the idea of having to pay more money at the end of the year, you should be conservative when you choose your allowances.

A lower number of allowances on your W-4 (0 being the lowest) will slightly lower your paycheck each payday because more income taxes will be withheld, but that means youll get more back at the end of the year. Conversely, a higher number of allowances will increase each paycheck each payday, but means youll owe more at year-end.

We advise everyone to be conservative. A larger-than-expected refund is much better than a larger-than-expected payment. Once you have a tax history, it is easier to get closer to a zero balance by adjusting the number of allowances on Form W-4 to withhold a little less or a little more each pay period.

If you need a copy of Form W-4, we have it on our webiste here. If you have any questions as you fill it out, just give us a call.