Understanding Form W4: Employee Withholding Allowance Certificate

Summary

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The primary reason many people pay more than what is actually owed on taxes is because the number of withholding allowances claimed on their W-4 are often confused with the number of exemptions an employee expects to claim on their tax return. Additional withholding allowances are often granted for reasons other than exemptions. For example, a single mom with one child may conclude that when filling out Form W-4 she should claim two withholding allowances because she will be claiming two exemptions on her tax return. However, a careful review of the Personal Allowance worksheet will show this single mom can claim additional allowances because there is an allowance awarded for claiming as head of household. There is an allowance awarded if she has at least $1,500 child or dependent care expenses. There are up to two allowances awarded if she will claim a child tax credit and her total income will be less than $52,000. So while marking single with two withholding allowance on her W-4, this single mom's W-4 should reflect single with six withholding allowances. The end result is more money being taken out of your paycheck than what you actually owe on taxes. Below is a summary of each line on the "Personal Allowance Worksheet":

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Understanding Form W4: Employee Withholding Allowance Certificate

If you have been receiving a relatively large tax refund (refund in access of $1,500) in the past couple of yearts, yet finding it hard to make ends meet, this article is for you.

Nearly 70 percent of Americans are living paycheck to paycheck. After the...

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