The IRS (and perhaps a state tax collector) will share the income you receive in each paycheck. If you wish, you can fine tune the amount of tax that’s withheld, to make it higher or lower.
All workers must complete Form W-4, which determines how much tax will be withheld. On this form, you claim a certain number of federal exemptions. The more exemptions you claim, the greater your take-home pay.
Minimum exemptions. You’re allowed to claim one exemption for yourself and one for a spouse who’s not covered by her own Form W-4. If you wish, though, you can choose to claim zero exemptions, which will decrease the amount of money you’ll receive in each paycheck.
Maximum exemptions. If you will have large tax deductions (such as mortgage interest and property tax), you can go through a worksheet on Form W-4. This may enable you to increase the exemptions you claim and have more take-home pay.
Choosing minimum exemptions is a form of forced saving. You’ll pay more tax during the year and may qualify for a large tax refund. Thus, this strategy may be helpful if you think having more money in your pocket throughout the year will lead to overspending.
On the other hand, claiming the maximum amount of allowable exemptions means that you’ll receive more money with each paycheck. That may help you to meet your cash commitments, such as property tax and mortgage payments.
Either way, increasing or decreasing exemptions will not change the amount of income tax you’ll owe. If you claim exemptions without being entitled to them, you’ll have too little tax withheld and wind up owing huge amounts when you file your annual tax return. So crunch these numbers with care.
