How Many Allowances Can You Claim
Whenever an employee gets paid, a certain amount of income tax is automatically deducted or withdrawn from the paycheck. This paycheck is turned over to the IRS. An allowance is a fixed amount of money received by an employee from his employer that meets certain expenditures over the salary. These are considered as a part of the individual’s salary and are taxable. The more allowances you claim, the lesser the amount of tax is withheld from your paycheck. Various allowances are provided to salaried employees. For example, an employee gets overtime allowance if they work more than the usual hours.
Before 2020, one of the most significant actions one could take that affects the size of your paycheck was to modify and adjust the number of allowances claimed on your W-4 form. Finding the right number of allowances for your current condition is essential. If you claim too many allowances, you may owe the IRS some money and possibly pay the penalty for your error. If you take a lesser number of allowances, you will receive that money back as a tax return.
The Allowances Are Divided Into Three Types
Taxable Allowance includes dearness allowance, overtime allowance, entertainment allowance, etc.
Non-Taxable Allowance includes allowance paid to government employees abroad, UNO employees, judges of the high court and supreme court, etc.
Partial Taxable Allowance includes medical allowance, conveyance allowance, house rent allowance, special allowance, etc.
How Claiming Various Numbers of Allowances Could Affect Taxes
Having 0 allowances
This is usually for college students, where the parents make the claim. This is the case where someone claims you as a dependent on their return. In this case, the maximum amount is withdrawn from the paycheck, and you’ll get the money back at tax time.
Having one allowance
This case is useful if you are single and employed. You can also claim it in case you are married, and you are filing it as the head of the family. You can even get money back at the end of the year.
Having two allowances
You can claim two allowances if you either have more than one job or if you are married. In case 1, you can divide the allowances among the two jobs as job 1 and job 2. In case 2, you can claim one for yourself and another for your spouse.
Having three or more allowances
You can file three allowances if you are married and have a child. But if you have more than one child, you can claim more than three allowances.
Why is it important to claim your allowances?
One must ensure that the right amount of income tax is deducted from the paycheck. The amount deducted is turned over to the IRS (Internal Revenue Service). To claim the right figure, the W-4 form is the one that is required to be filed at the beginning of a new job or any life event like marriage or birth of a child. The number of allowances claimed by a person shows the tax amount withheld from his or her pay. When you claim more allowances, you have less money withheld from your paycheck. One should always file a new W-4 form for every year because the financial and the personal situations might vary from the past.
