Personal Allowances on Taxes

In Forms W4 2024 and before, taxpayers could claim allowances to reduce and increase their federal income tax withholding. The form has changed, and so did the personal allowances – in fact, the IRS removed them. You won’t find personal allowances on Forms W4 anymore, and the way the form is filed is drastically different than in the past.

How to increase/decrease the amount of withholding?

Now that the personal allowances are gone, which was easy for taxpayers to adjust their federal income tax withholding, it’s now even easier. At least if you’re anticipated to increase the amount of federal income taxes withheld from your paycheck every pay period.

Increasing federal income taxes withheld

On the current version of Form W4, you can enter an extra withholding amount that’s going to be effective the next time you get a paycheck. Your employer will take out the extra withholding amount you enter on the form in addition to the normal rate. 

Here is an example.

Suppose your employer is withholding $100 for the pay period, and you entered $50 on the extra withholding part of the form. That will equate to $150 for that pay period.

Although increasing the federal income tax withholding rate is quite easy, you’ll need to follow extra steps to let your employer know that you’re no longer required to forward as much towards your tax bill. 

Decreasing federal income taxes withheld

When filling out the tax withholding form, you will need to enter a couple of information about your anticipated tax return. If you have a high deduction amount or credits, your withholding is going to be less. Since entering wrong information on Form W4 is considered fraudulent, you’ll need to claim exempt status for some time and fill out another new W4 in the future.

As for claiming the exempt status, just enter your name, Social Security Number, and filing status. Then, write down exempt on blank space between Step 4 and 5. Your employer won’t withhold federal income taxes from your paychecks after claiming the exempt status. 

You can then refile Form W4 normally to continue withholding federal income taxes. Since there is a penalty for under-withholding, you should take the tax withholding estimator to see if you’re going too far in either direction.