How do you know if this might happen? One likely cause is if you receive significant income reported on Form 1099, which is used for interest, dividends, or self-employment income on which you have not yet paid taxes. Or, you may be still working but receiving pension benefits from a previous job or Social Security retirement benefits.
How to Fill Out Form W-4 in 2022
Amy Fontinelle has more than 15 years of experience covering personal finance—insurance, home ownership, retirement planning, financial aid, budgeting, and credit cards—as well corporate finance and accounting, economics, and investing. In addition to Investopedia, she has written for Forbes Advisor, The Motley Fool, Credible, and Insider and is the managing editor of an economics journal. She is a graduate of Washington University in St. Louis.
Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
In 2020, major changes were made to Form W-4, the form every employee has to fill out to determine the amount of taxes that are withheld from each paycheck. The Internal Revenue Service (IRS) said it revised the form to increase its transparency and the accuracy of the payroll withholding system.
The new Form W-4 does not ask employees to indicate personal exemptions or dependency exemptions, which are no longer relevant. It does, however, ask how many dependents you can claim. It also asks whether you wish to increase or decrease your withholding amount based on certain factors like a second job or your eligibility for itemized deductions.
How Many Allowances Should I Claim?
Now that you’ve determined how many allowances you’re able to claim, you’ll have to decide how many allowances you should claim. Generally, if you don’t claim enough allowances, you’ll overpay your taxes throughout the year and receive a tax refund. If you claim too many allowances, you’ll owe the IRS money when you file your taxes. Your first instinct might be that it’s better to overpay and receive a tax refund. Most people love tax refunds. And what’s not to love? A tax refund is a lump of money that you get right before summer—and from the IRS, no less! People use their tax refund to pay bills, put in savings, or splurge on shopping. But here’s the truth: a tax refund might not be the best thing for you, no matter how big your refund is. If you dispersed your tax refund across all your paychecks, then each paycheck would be larger. Think about it: would you be better off if you made an extra $50-$100 on each paycheck? That’s money you could put toward rent, food, your cell phone bill, or savings. When you overpay your taxes, you’re basically lending the government money but charging no interest. The money, which is rightfully yours, sits in the government’s pocket all year and you get nothing for it. Wouldn’t it be better to put that money back into your paychecks? On the other hand, you don’t want to withhold too much money from your paychecks. If you withhold too much money, then you’ll have a very large bill come tax season. Larger bills are harder to pay. The best strategy is to withhold close to the actual amount of money you’ll owe in taxes. Aim for either a small refund or a small tax bill. Either of these means that you received closer to your fair share of money on all your paychecks. Do you want a higher tax refund? Or do you want high paychecks? Follow these guidelines to achieve either.
Single with One Job, Multiple Jobs, or Married Couple with No Dependents
Married Couple with Dependents
If you claim 0 allowances or 1 allowance, you’ll most likely have a very high tax refund. Claiming 2 allowances will most likely result in a moderate tax refund. If you want to get close to withholding your exact tax obligation, then claim 2 allowances for both you and your spouse, and then claim allowances for however many dependents you have (so if you have 2 dependents, you’d want to claim 4 allowances to get close to withholding your exact tax obligation).
Head of Household with Dependents
You’ll most likely get a tax refund if you claim no allowances or 1 allowance. If you want to get close to withholding your exact tax obligation, claim 2 allowances for yourself and an allowance for however many dependents you have (so claim 3 allowances if you have one dependent).
How much can a dependent child earn in 2021?
There may come a time when you can no longer claim your child as a dependent. It might be because of their age (your child no longer qualifies if over the age of 18 or 24 if a full-time student), you no longer pay for half their financial support, or they’ve moved out of the house. Whatever the reason, you can no longer claim them under the qualifying child dependent rules, and maybe only under the qualifying relative tests.
You can claim adults as dependents on your taxes if they meet the criteria laid out for qualifying relatives. Many people care for elderly parents and claim them as a qualifying relative dependent. Likewise, you can claim a domestic partner on your return as a dependent.
Generally, the biggest hurdle to overcome by claiming an adult as a dependent is the income test. Adult dependents can’t have a gross income of more than $4,300 in 2021. If you follow all the guidelines and the adult meets the criteria, you can claim them as an adult dependent, opening up the opportunity to claim additional tax deductions and credits to lower your tax bill.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.