Breaking Down The W-4: What it Means, and How it Affects Your Taxes

Ed note: That first day of a new job is so exciting! Not so exciting is the miles of paperwork. Tax forms. Health insurance. Retirement plans. One of those pieces of paper is incredibly important when it comes to how much you might owe at tax time. The Tax Institute is here to help explain.

One of the most common forms new employees complete is a W-4. You may know it has something to do with taxes, but many don’t really understand what the form is asking or how it affects our taxes. Maybe you take a guess at how to fill it out. Or maybe a friend has advice. While those options aren’t terrible, it could lead to you paying too much or too little in taxes. So here’s the lowdown on Form W-4, as well as some tips to better your financial position now and at tax time.

I got a new job so I have to complete my W-4, but I don’t really know what the form is for.

When you start a job, all employees complete a Form W-4. This form determines the amount of federal income taxes your employer will withhold from your paychecks throughout the year. It does not change the amount of your pay that will go toward Social Security and Medicare. Those are defined amounts.

How is the amount of income tax determined?

The W-4 will calculate how much income tax you withhold based on your marital status and the number of withholding allowances you claim.

What are these withholding allowances?

W-4-detailThere is an allowance worksheet that will help you calculate this. You can claim an allowance for:

  • Yourself, so long as you are not a dependent claimed on someone else’s return
  • Your spouse, unless that spouse has a job and claims a regular exemption
  • Each dependent

There are additional withholding allowances that are related to credits and deductions. For example, you may add one allowance if you have more than $2,000 in child or dependent care expenses for which you plan to claim a credit on your tax return.

While the calculation can seem a little complex, there are resources to help you determine how much you should be withholding. One particular resource worth trying is the IRS Withholding Calculator. Just plug in your information and it will help you to determine how many allowances to place on your W-4.

Related: See our infographic that breaks down Form W-4.

So does the number of allowances on the W-4 have to be the same as the number of people in my family?


In fact, if both spouses work, or if you have two jobs, the allowances should be different on each W-4. If both spouses claim allowances for the other person, the amounts would be withheld twice. Instead, you might use an allowance for yourself, and allowances for your children, and your spouse only uses an allowance for himself or herself. That way you are taking an allowance for each member of your family but not causing any duplication that could cause under-withholding.

This is confusing. How about I just put zero allowances so I know I’m paying enough in taxes?

Well, it’s an option, but not always a preferable one. When you default to zero allowances, the maximum amount is withheld. Depending on your tax situation, it could result in a big refund check, but you are essentially extending an interest free loan to the government by allowing them to hold on to your money all year. Many taxpayers would be better off receiving more of their pay check throughout the year to cover personal expenses, pay down credit card balances, or by using the amounts to generate income another way, such as investing or contributing to a retirement account.

There is a caveat: do make sure to have enough withheld. Otherwise, you may have a larger federal tax bill once you file your return.

Someone told me that I needed to check my W-4 since I got married. Why?

It is best to revise your W-4 after significant life events such as getting a new job, getting married or having your number of dependents change – like when a baby is born or adopted or when your adult child is no longer considered a dependent. Since the amount withheld is based, in part, on the number of people in your family and is affected by other tax credits, you want to check to make sure that the number of allowances is still appropriate.

The IRS directs that you complete a new W-4 within 10 days of any major life events.

One of my co-workers told me to declare myself exempt so that I get more of my paycheck. Is that a good idea?

Generally, no, it’s not a good idea.

By declaring that you are exempt, the employer would not withhold any federal income tax amounts during the year, and that would result in a large tax bill due on April 15. In addition to having to pay a whole year’s worth of taxes, you could also face interest or underpayment penalties.

The only exception is if you are not subject to income taxes. In order to qualify as exempt, you must meet the following criteria.

  • For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability
  • For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability

Most people do not meet these criteria, but if you do, then by all means listen to that co-worker.

What if I realize now that I have not been withholding enough so far this year?

This is the good part – you can complete a new W-4 at any time to change the number of allowances you claim going forward. If you are pretty far into the tax year, you may want to increase your withholdings a little further. This will help compensate for amounts that would have been withheld earlier in the year. While it’s a more significant decrease of your monthly income, it helps ensure that you do not have a large liability at tax time. If you do need to do that, make sure to adjust the amount back at the beginning of the next year. Here is an example to clarify this:

Jamie had a co-worker that told her she could avoid paying some taxes if she claimed to be exempt from withholding. Jamie now realizes that she is not exempt, but it is already July. Normally Jamie would be able to just use one allowance, because she is single and doesn’t have any children. However, since she has not been withholding any amounts for the first half of the tax year, she might go ahead and use zero allowances to withhold a little bit more for the rest of the year to compensate. In January she will then complete a new W-4 using one exemption, since she has not had any major life changes.

I ended up owing a lot to the state where I worked. What happened?

Often we think about adjusting our federal income tax withholding, but forget that most states also charge an income tax, so amounts must be withheld for that, too. When you update your W-4 for your federal income taxes, make sure you check on the W-4 for the state that you live in. Also make changes for other states if you work in a different state, own a business interest in another state or if you moved during the tax year.

Head still spinning a bit? Our offices are open year-round. Make an appointment to get additional help from an H&R Block tax professional.

Extending the Life Expectancy of Major Home Appliances

One of our most popular posts looked at how long seven common household appliances should last you. But should isn’t good enough for us. We dug into exactly how long they are operational, the cost to replace them and tips for keeping them in working condition longer. What’s more – we went way beyond seven appliances. Here’s the details on 27 common household appliances, from the big – like a furnace or refrigerator – to the small – like smoke detectors and garage door openers. It’s the ultimate guide for any homeowner, especially those on a budget.

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How to Extend the Life Expectancy of Major Home Appliances

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How to Build a Professional Wardrobe Without Breaking the Bank

Ed note: New job + new salary = shopping spree! Don’t get caught in that trap. A new gig might be a good reason to invest in new clothes, but follow these tips to do it smartly and without spending all that hard-earned cash. 

So you’re starting a new career and want a wardrobe to match. Awesome! Here are the essentials you’ll need as well as tips on finding quality clothes that last, without breaking bank.

Research The Workplace

When you interviewed for the job, did you get a good sense for what your colleagues wear? If not, do some research. Talk to new coworkers or network with others in a similar field. Knowing whether the office business casual 24/7 or suit-and-tie only will be important in determining where to spend your money.

Get Inspired

One of the most difficult aspects of assembling a professional wardrobe on a budget is coming up with ideas to pull the entire look together. The good news is you can get creative inspiration for free.

Look for outfit ideas on Pinterest or Polyvore, where users create their own inspiration boards and share trending ideas. They have ideas for both men and women that include any type of style you can imagine. This will give you a chance to mix up your wardrobe and make it feel like new without purchasing more clothing.

Invest In the Basics

ProfessionalWardrobeThere are a few basic pieces that can be great to have in your professional wardrobe:

  • A nice suit
  • Neutral blouses and shirts
  • Comfortable but classy shoes
  • Good items for layering

Start with articles of clothing you’ll want to keep and wear over and over again. These will be your go-to picks for work-related events and daily wear. Don’t skimp on investing in quality pieces of clothing!

Sites like and offer high-quality clothes that cover basics like dresses, blazers and pants, while offering timeless style. Spend the bulk of your budget here, so you can start with a good foundation of professional clothes to build upon.

Find Quality Pieces for Less

Just because you want to invest in quality pieces for your professional wardrobe doesn’t mean you can’t score a good deal. Keep an eye out for well-made articles of clothing that are reduced in price.

A few places to find quality clothing for less include:

  • and are membership-only sites that offer huge discounts on name-brand clothing, accessories and other household items. They offer clothing for men, women and kids at up to 70% off regular retail prices. Best of all, membership is free!
  • Thrift stores are unique places to find vintage or timeless pieces of clothing if you’re willing to spend some time rummaging through the racks. Some well-known examples of thrift stores include Goodwill and The Salvation Army.
  • Consignment shops differ from thrift stores as they usually showcase higher quality pieces of clothing that are like-new or barely used. You can often score an amazing deal on brand-name purses, shoes and other articles of clothing.

Supplement with Accessories

Nothing dresses up a basic wardrobe like fun accessories. Instead of spending a lot on a fancy blouse or new skirt, pick and choose inexpensive accessories to liven up your wardrobe.

Stores like Forever 21, TJ Maxx and Target have a wide variety of cheap accessories like purses, watches, belts and scarves. Since you won’t be spending a lot of money, you can change out your accessories each season to freshen up your basics.

Building a professional wardrobe doesn’t have to break the bank. Simply use these tips to get the most bang for your buck while looking super stylish.

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