When filling out your W-4 form, it will be important to know the difference between claiming 1 and 0 on your taxes. Claiming the right choice could mean the difference between having to pay the IRS or getting more on your tax return.
Understanding the Differences Between Allowances and Exemptions
Allowances and exceptions can help determine how much to tax your income. Allowances will be impacted by the number of jobs/sources of income that you have, your marital status and your filing status, whether you have children, have additional dependents, and other specific details. Exemptions work to reduce the amount of income tax you will pay. You can claim yourself, your spouse, children, and other dependents. Keep in mind that if you do claim yourself as an exemption, you cannot be claimed by another person.
When filing your federal income taxes and filling out your W4-form it is important to get the number of allowances and exemptions correct.
What is the Major Difference between Claiming 1 and 0 on Your Taxes?
Claiming a 1 or a 0 on your W-4 form can make a huge difference in the amount of tax taken from your paycheck, and the amount you will receive is your tax refund. Here is how these claims work:
Claiming 1 on Your Taxes
When you claim 1 on your taxes, you will have less tax collected from your paycheck each pay period, and more money in your pocket with your paydays. However, claiming a 1 will mean that you will get less money from your tax return. For those who would not prefer to wait for a lump sum, and have many expenses to take care of, claiming a 1 may be your best option.
Claiming 0 on Your Taxes
When you claim 0 on your taxes, your tax withholding for each paycheck will be higher. This will mean less take home pay, but it will mean a larger refund next year. Those who aren’t head of household or don’t need that extra money on a month to month-to-month basis may choose to claim 0 on their taxes.
Do I Have to Claim 0 on my Taxes?
There are a few scenarios where you have to/ may want to claim 0 on your taxes:
- If you are employed and are already claimed as a dependent on another person’s tax return.
- When you are working with other sources of income such as a contract position, freelance work, stocks, earnings from a savings account etc. it may be easiest to claim 0 so things don’t get more complicated than needed.
- If you are still having trouble figuring out whether you should be claiming 1 or a 0 on your taxes, a tax expert or financial advisor may be able to help you out during tax season!
What If I Make a Mistake on my W-4 or my Situation Changes?
The convenient thing about W-4 forms is that you can edit them. Revisit your W-4 either electronically or with worksheets (which can be mailed to you by the IRS after filing a request for the IRS form).
Here are the major reasons people adjust their taxable income on a W-4:
Acquiring a Second Job or Running a Business
This is the most common reason that people have to adjust their W-4 or file a new W-4 form. Whether you have a home business or get another full-time job, you’ll want to change your W-4 to match it.
Change of Income from Spouse
Any change of household income, for example, a spouse getting a new job, will also require a different tax bracket for allowances. Based on the income change, it may be necessary to adjust your W-4.
Adding a Family Member
Whether you are adopting or having another person/child in your household, these will provide you with tax credits, and allowances. And so, it is extremely important to make those adjustments ASAP.
If you lose your job during the year, and get rehired during the same year, your taxes will need some adjustments.
Change in Marital Status
Getting married or getting a divorce can impact your tax payments, especially when both spouses work. If you are married, filling jointly will lower the tax rate and may come with additional deductions. If you are now divorced you won’t get those same benefits, and so either way your withholding amount will need to be adjusted accordingly.
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