The difference between claiming 1 and 0 on your taxes will determine when you will be getting the most money: with every paycheck or in one lump sum during tax season. Each allowance you claim lowers the income subject to withholding. For example, if you have 1 job, you can either claim 0 or 1.
Claiming 1 on Your Taxes
If you prefer to receive your money with every paycheck rather than waiting until a certain time every year, claiming 1 on your taxes could be your best option. Claiming 1 reduces the amount of taxes that are withheld
When you claim 0 on your taxes, you are having the largest amount withheld from your paycheck for federal taxes. If your goal is to receive a larger tax refund, then it will be your best option to claim 0. Typically, those who opt for 0 want a lump sum to use as they wish.
How much you claim will be determined by your lifestyle and living situations. As mentioned previously, things like marital status, children, number of jobs, and more can help you determine what you should claim on your taxes. The best option for figuring it out is to talk with your accountant or contact an IRS agent.
Don’t worry about claiming the wrong allowances on your W-4, either. You can revisit your W-4 either electronically or with worksheets provided by the IRS. People make changes all the time for reasons like:
- Getting a second job
This is the most common reason that people have to adjust their W-4. Whether you have a home business or get another full-time job, you’ll want to change your W-4 to match it.
- Spouse gets a job/changes jobs
Any change of household income will also require a different tax bracket for allowances. Based on the income change, it may be beneficial when one spouse claims the allowances over another.
- Unemployed for part of the year
If you get laid off or stay unemployed for the remainder of the year, you may have too much tax withheld. But, if you are re-hired within the same year, you’ll have to adjust for the downtime.
- You get married/divorced
Tying or untying the knot will change your tax rate – especially if both spouses work. Joint filing gives a lower tax rate and other deductions, so a divorce will also reverse the benefits. Your withholdings could be inaccurate if not adjusted properly.
- You have a baby/adopt one
Having a child is a major tax event since you now have a dependent as an allowance. Adoptions also give you another tax credit. Either of these situations can reduce your withholding amount with the tax benefits, so you’ll want to adjust it.