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Tax Exemptions vs. Allowances

A quick tax season reader question for today:

“I’m a little confused about exemptions. When you start a new job, you’re required to complete a W-4. Don’t you have the option to claim how many exemptions you want? For example, when I started my job a few years ago, I claimed “0” so that I’d get more taxes taken out and then get a refund at tax season (rather than possibly owe more at tax time).

However, I’m married and have a son. Should I be claiming “3,” or is that automatically done by my tax preparer when doing my taxes? In other words, am I missing out on my 3 exemptions because I didn’t claim them on my W-4?”

You’re confusing two separate concepts: exemptions and allowances.

Exemptions are claimed on your Form 1040. They reduce your taxable income and, therefore, your income tax. You are allowed one exemption for yourself, one for your spouse, and one for each qualifying dependent.

Allowances are claimed on Form W-4 — when you start a new job, for instance. Each allowance you claim reduces the amount of your income that is withheld for taxes. The point of Form W-4 is to help your employer estimate how much tax you’ll owe on the wages they pay to you, so that they can withhold the appropriate amount from your paychecks.

The link between the two concepts is that the maximum number of allowances you can claim depends on (among other things) the number of exemptions you’re allowed to claim — though, if you want, you can choose to claim fewer allowances than the amount to which you’re entitled.

In other words, choosing not to claim the maximum number of allowances on your W-4 will only increase the amount of income tax withheld from your paychecks. It will not have any effect on your ability to claim the appropriate number of exemptions on your Form 1040.


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  1. Mike,

    You should also do a follow-up post on the folly of intentionally over-withholding so you get a big refund in the spring. This questioner apparently doesn’t realize that he has been giving the government a nice, big, interest free loan. If he was smart, he would attempt to accurately claim his allowances and break even in April, keeping that extra money in his own pocket (or investment/interest bearing account) rather than the government’s.

  2. Ace,

    I edited out part of the email because it contained several other (mostly unrelated) questions. In this particular person’s case, he has a significant amount of other income from which there will be no withholding. By over-withholding from his wage income, he avoids having to make estimated tax payments.

  3. In that case, good thinking!

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