Should I Claim 1 or 0 on my W4? How to Boost Your Paycheck Today

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You want more cash in your paycheck and you’re not expecting your boss to give you a raise anytime soon.  Yeah, that sounds familiar.

In a time when raises a slim to none, there is a quick and easy way to give yourself a raise on your next paycheck.

The answer lies within your W4 tax withholding form. You know, the one you filled out when you started your job and then forgot about. That semi-complicated looking tax form where you may have asked yourself while filling it out, “should I claim 1 or 0 on my W4?”

You are not alone in just throwing any number of allowances (likely 0) and handing it over to your employer.  But there’s a better way, and it can put extra cash in your next paycheck.

What is a w4 form used for?

Your W4 tax form is used by your employer to determine how much tax to withhold from your paycheck and sent to the Internal Revenue Service (IRS).

So the main intent is that you fill out your info and the correct amount of tax gets taken out of each one of your paychecks.  So how do you know if you’ve gotten it right?

The answer is pretty simple, assuming no changes to your personal or financial situation.  If you received an income tax refund this past year, then your employer is withholding too much. Or the opposite, if you owed money and had to write a check to the IRS when you filed your taxes, then your employer is withholding not enough.

How to fill out W4 form?

Any tax form is usually pretty scary to look at, let alone fill out correctly.  And the W4 form is one that most people fill out when they start a new job and then forget about so it’s not seen regularly.

So while it’s not seen often, how you fill it out will have an impact on every paycheck you receive.

Out of all the tax forms, the W4 is actually quite simple to fill out, with the exception of knowing the right number of allowances to claim.

Step by Step Instructions

As you can see in the picture below, there are only a handful of fields to fill out, with most of them being your personal information. We’ll go through each one of the numbered fields here pretty quickly.

W4 Form - Should I claim 1 or 0 on my W4

  1. Your Name
  2. Your Social Security Number
  3. Check whether you are single or married, or if you are married and want your employer to withhold tax at the higher single rates (checking this means you’ll have more tax taken out of each paycheck as they’ll use the higher income tax percentages charged to single tax filers).
  4. Only check this if your last name is different from your social security card.
  5. This field is the key field (outside of box #3) for how much tax gets withheld from your paycheck. Here is where you enter a number for allowances that you are claiming. So how do I know if I should claim 1 or 0 allowances? We’ll get to that in a minute, but here is where you’re going to enter that number.
  6. This field is used if you are claiming 0 and also want to have your employer withhold even more tax each paycheck.
  7. By writing in Exempt in this field you are stating “I claim exemption from withholding”.  Before you do that, be sure to read the 2 questions the IRS asks here and answer them appropriately before doing anything.  If you don’t qualify for this, then leave the field blank.

Fields 8-10 are for your employer to fill out. But before you give the form to your employer, be sure to sign and date the W4.

How many allowances should I claim on my W4?

The number of allowances claimed has a direct impact on the size of your paycheck as well as the size of your refund or amount of tax owed when you file your taxes.  Should I claim 0 or 1 on my W4 allowances?

In 2018, nearly 3 out of 4 people who filed their taxes with the IRS received a refund.  The average refund was $2,899.

Let’s say you are an average filer, and instead of getting a $2,899 refund you want that money in your paycheck.  If you get paid every 2 weeks, that could mean an additional $111.50 in every paycheck or $55.75 a week if you get paid weekly.

That’s a lot of extra cash that you are giving up by setting an incorrect number of withholding allowances on your W4.

Basically setting your number of withholding allowances is determining when you have cash vs when the IRS has cash.

When this gets costly is if you are like a lot of people and carry credit card debt. The current average credit card rate is 17.67%.

If you are getting the average $2,899 refund, it means you’ve given the IRS an interest-free loan.  At the same time, you are paying a high-interest rate on credit card debt.

17.67% on $2,899 for a year is $512 in interest. You could save a lot of money by changing your withholding allowances to have more money in each paycheck to pay down your credit card debt faster.

How can I get a Bigger tax refund?

When you ask yourself should I claim 1 or 0 on my W4, you should determine the answer based on your expected tax due for the year.

However, if both 0 and 1 allowances will both give you a refund at the end of the year, then by selecting 0 instead of 1 allowances, you’ll end up with a bigger refund.

How to fill out w4 to get more money in my paycheck?

Claiming 9 allowances on W4 form or even claiming 10 on W4 will certainly give you more money in your paycheck.  But there are also risks to this strategy.

You’ll end up owing a huge amount of taxes for the year if you don’t have enough taxes withheld. The other risk of this strategy is that in addition to owing, you might be slapped with a penalty by the IRS.

So, How Many Allowances can I claim?

To truly be sure how many allowances you can claim, you have a couple of easy options. 1) Fill out the personal allowance worksheet W4 or 2) the IRS provides a W4 withholding calculator.

This federal withholding calculator will only take a couple of minutes to fill out, however, it is only as accurate as the information you provide.

So grab your most recent pay stubs and your most recent income tax return and you are ready to enter your data into the IRS W4 allowance calculator.

How do I change my W4 form?

Your human resources department may have an online system for you to fill out an updated form.  If not, the IRS has a pdf W4 form available on their website.

It is a printable W4, so you can print a copy, fill it out and hand it into your human resources or payroll department.

W4 Allowance Changes Do Not Impact All Payroll Taxes

Changing your W4 form withholding allowance amount will only impact the federal income taxes withheld.

Social Security and Medicare taxes will be taken out at their same rates. The Social Security withholding rate is 6.2 percent times your gross pay up to the limit for that year.  Medicare withholding is 1.45% of gross pay with no limit.

Unless you adjust your state W4 form, state taxes will continue to be taken out at their same rate.

Final Thoughts

Looking for a nice increase to your paycheck?  Updating your W4 allowances can be a simple way to give yourself a raise in your regular paycheck.

Have you looked at whether you are having the correct amount of tax withheld from your paycheck?  If not, you may be giving the government an interest-free loan. That interest-free loan is even more painful when you are paying interest all year long on your own debt.

Resources

IRS Publication 505 – Tax Withholding and Estimated Tax

IRS Topic No. 306 – Penalty for Underpayment of Estimated Tax

IRS W4 Form

IRS Withholding Calculator

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GP

Hi, I'm GP. A personal finance expert with a mission to help Entirely Money readers break free of money worries. Combining a finance-focused education background (B.S. in Finance and MBA with Finance focus) with over 15 years of personal and corporate finance experience to help you achieve your financial best life!

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