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How Do W-4 Allowances Affect Take-Home Pay?

How Do W-4 Allowances Affect Take-Home Pay?

Would you like to give yourself a raise? If you normally get a large tax return, perhaps you should take another look at your W-4. This is the form you fill out as you prepare to start your new job. The "allowances" on the W-4 tell your employer how much federal income tax to withhold from your wages.

The more allowances you claim, the less tax is withheld. If you want to give yourself a raise by reducing the amount of taxes withheld, simply claim as many allowances as you legally can. You can claim an allowance for yourself, your spouse if he/she isn't working, and your dependents.

Have you recently gotten married? Have you had a couple kids since you last modified your W4? Your employer might have a system for updating your W4, but if not, simply fill out a new W-4 Form (from and submit it to your employer with a request that they apply the change as soon as possible. This won't affect past paychecks, and maybe not your next paycheck, but you could start seeing the difference after that.

Paycheck Calculator

Paycheck Calculator Screenshot

You don't have to wait for a paycheck stub to find out how much your take-home pay will change. After you've completed the W-4 form, your employer uses a table system provided by the government to see how much they need to pay you. The table can be found in the Employer's Tax Guide, published by the IRS (see below). If you don't like reading tax guides or doing calculations by hand, you can use the Vertex42® Paycheck Calculator to run various what-if scenarios. Just plug your information into this easy to use (free) spreadsheet and voila, you can see immediately how much your "raise" might be.

Why give the government an interest-free loan? Some people may think waiting for the tax return in the spring is the only way the system works, and who knows, you might even like getting that little bonus each year. But, did you realize that if you overpay your taxes throughout the year, you're just letting the government hold your money, interest-free? I can think of  better things to do with that money than let the government hold it.

The fundamental Time Value of Money principle says that money today is worth more than the same amount of money in the future.

What could you do with an extra $100 or $200 per month? You can certainly do better than 0% interest from the government. Apply it to your mortgage for a 5%-6% "return", pay off a credit card balance for a 10%-20% "return", build up your emergency fund, or apply it to one of your many other savings goals. The possibilities are endless. Why wait for the annual tax return, when you can have the money to benefit yourself now? Include the extra income in your regular budget instead of waiting for that yearly tax return.

It is true that some people would rather overpay their taxes and get a return than worry about possibly underpaying and having a tax bill due on April 15th. However, if the sole source of your income is wages and you claim your allowances accurately, this shouldn't be a problem. If you ARE still worried, then stick the extra take-home pay in a savings account - at least then it will earn a little interest FOR YOU.

by Jon Wittwer and Nathan Hall



9 comments… add one
  • A w-4 form is just a way for your employer to take out the proper taxes out of your pay:(

    • I know this is a late response lol. But why the long face? It IS a way for the employer to “…take out the proper taxes.” But it’s so much more. Following the IRS Tax laws, there are strategies to completely change your life. Have you ever heard of personal Income Shifting? If not, I’ll forward you some information to help change everything about your finances.

  • If I make $1000 a week pay check with 2 dependents how much I get to take

  • Of course, Mr. Hall’s points are very valid. And if you are reading this blog, and downloading his paycheck calculator and templates, you probably are wise enough to follow his example. Some folks, however, might think it’s safer or less tempting to ‘hide’ their tax ‘overages’ in the IRS maze and get a nice refund check; maybe in this routine, they think they won’t feel as compelled to spend the money so easily.

  • “After you’ve completed the W-4 form, you’re employer uses a table system provided by the government to see how much they need to pay you.”

    I think you mean “your employer” not “you’re employer”.

  • I turned in my w-4 form on Friday 5-24-13 to claim more dependents. If it was turned in right away, can I get more on my check on my next payday on June 5th? Or do I need to wait 2 more weeks after that? Does anybody know?? Thanks

    • @Jenny, you’ll probably need to ask your employer that question.

  • If I’m expecting a large retroactive check and increase my dependents just for that date, how will that affect my return at the end of the year. Example: increase for 1 or 2 pay dates then back to my usual number of dependents.


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