Withholding Allowance

When you’re working for The Man, you only get a portion of your paycheck. The rest evaporates into the ether called “withholding tax,” which is the amount your employer holds onto in order to pay Uncle Sam the taxes you owe him.

If you want to make your paycheck bigger and reduce the amount that’s withheld for taxes, you can increase your withholding allowance. Withholding allowance is an exemption that lets you reduce how much your employer takes from your paycheck for taxes.

While this might sound all fine and dandy, there’s no secret way to keep more money from taxes happening here. You can only get a withholding allowance if your life calls for it, like if you have dependents. With dependents, your paycheck will be a bit bigger than without. But if you claim more withholding allowance than you should have, you’ll end up paying more in taxes when tax season comes around. Ew, we know.

Likewise, if you end up not claiming your withholding allowance, you’ll get more money in tax returns during tax season. While getting something that feels like a bonus paycheck feels nice, it’s not ideal, since you could have been getting that money in increments over the year. It's better to have money sooner rather than later. Just think of how much interest that money could have earned, or the value it could have provided you if you had received it earlier. Check the IRS’s withholding allowance Goldilocks formula to get a withholding allowance that’s not too small, and not too big. Just right is preferred.