With the 2019 tax season wrapping, you may have asked yourself the following question: Should I claim 1 or 0 on my W4-Form?
Whether you’re starting your first job, or if you’re a seasoned pro, filling out a W-4 seems to always be a confusing affair. How many allowances should you be claiming on your W-4? Will more allowances cause you to owe taxes at the end of the year? Will claiming zero mean you’re paying too much in taxes?
If you’ve wondered how many allowances you should claim on your W-4, here’s what you need to know.
What is a W-4 Form?
First, let’s talk about what a W-4 is. A W-4 is a four-page form that the IRS requires you and your employer to fill out so you can have taxes taken out of your paycheck.
Here are just a few parts of the W-4 that you’ll have to fill out:
- Your name
- Your address
- Your Social Security number
- Whether you’re single or married
- If you’re a dependent
- The total number of allowances you’re claiming on the W-4
- Your signature confirming all information
What are W-4 Allowances?
Now, let’s talk about what W-4 allowances are. When you get paid by your employer, they will withhold a certain amount of money from your paycheck. This amount covers your taxes. That way, at the end of the fiscal year, you won’t have to pay all of your taxes upfront.
How much your employer takes out for taxes depends on a few key items. The first being the federal tax rate and if your state has a state tax. The second is your W-4 allowances, or in other words, the amount of money you’re telling your employer to withhold. This is why the IRS recommends updating your W-4 whenever you have a life changing event, like starting a new job, getting married, or having a child.
For each allowance claimed, you are telling your employer that you want less money taken out of your paychecks. If you don’t claim any allowances, you’re telling your employer that you’re okay with the default, or max taxes, being taken out of each paycheck.
Should I Claim 1 or 0 on My W-4?
According to a question Intuit Turbo Real Talk Community, when the question was posed of, “Should I claim 1 or 0 on my W-4?”
The answer to this question is: If you put “0” then more will be withheld from your pay for taxes than if you put “1”. The more “allowances” you claim on your W-4, the more you get in your take-home pay. Just do not have so little withheld that you owe money at tax time in 2020.
How Does it All Work?
In 2019, each allowance equaled to about $4,200 in income. In other words, if you claimed just one allowance, and were paid weekly, you’d see an increase of about $80 in each paycheck. While this amount will vary based on how much you make, and the taxes in your state and city, that amount could mean a huge difference in your day to day living.
However, with every allowance that you claim on your W-4, you’re taking a chance that you may owe money by the end of the year. The IRS expects for you to pay at least 90% of your taxes owed, or you may be hit with a penalty. If you claim too many allowances on your W-4, and end up having too few taxes taken out, you could be penalized.
When Should You Claim Allowances?
How many allowances you take depends on your personal situation. Do you have multiple jobs? Are you married and filing jointly with your spouse next year? Did you have a child? Do you have multiple children? Do you side hustle or have a business outside of your 9-to-5? These are all questions that you need to answer before deciding on your W-4 allowances.
As a rule of thumb, here is when you could claim an allowance:
- When someone else can claim you as a dependent, such as a parent or legal guardian. This does not apply if you’re a stay at home spouse or parent.
- When you’ve had a child or if you have multiple dependents. Keep in mind that stay at home parents and spouses are not considered dependents.
- When you get married and if your spouse is also working.
- When you’re the head of household with at least one dependent
As an example, if you were married and had two children, you could claim four allowances on your W-4. You can also get more insight into what you should claim on your W-4 by watching the 3-minute video on how to fill in a W-4 Form:
Do You Have to Claim Allowances?
Absolutely not. You can always just claim zero, even if you have children, are married, or a dependent yourself. This simply means that you’ll have more taxes taken out. On the bright side, you won’t have to worry about underpaying your taxes, and you may even get a bigger refund by claiming zero, especially if you can claim credits and deductions during tax time.
If you’re in doubt, just claim zero. You can always update and change it later. Also, don’t be afraid to contact a tax accountant to see if you can claim allowances without being penalized by the IRS. Sites like TurboTax make it easy to see how much you could owe or potentially get back, just by plugging in your income and general tax info.
How Can You Change Your W-4 Allowances?
Whenever a change in your life happens, you can always talk with your employer about updating your W-4. It’s important to do this as soon as possible so you can either get more money back in your paycheck or have enough taken out of each paycheck to account for the changes happening in your life.
If you’re changing jobs, you will be required to fill out a brand-new W-4 each time, so no worries on old W-4s lingering around. When you quit a job, they stop paying you, and thus they stop taking out taxes. The new job will need to know how much to take out, so they’ll have you fill out a new W-4 by default.
Bottom Line: Claiming Allowances on Your W-4
It may take some trial and error, or paying an accountant, to fully understand your W-4 and how many allowances you should be claiming each year. However, it’s simple to remember that the more allowances you claim, the less tax withheld. And the fewer you claim, the more taxes you pay. If you underpay due to too many allowances, you’ll owe money during tax time. And of course, if you overpay, you’ll get a refund when during the IRS refund schedule.
So, the biggest question you should ask yourself is, “Do I want to pay more taxes throughout the year and get a lump sum of money back or have more money in my paycheck each week?”.
Now that you can stop wondering, “Should I claim 1 or 0 on my W4?” and you can learn about the best free tax software to use to file taxes for free this year.
- IRS Publication 505 – Tax Withholding and Estimated Tax
- IRS Topic No. 306 – Penalty for Underpayment of Estimated Tax
- IRS W4 Form
- IRS Withholding Calculator