How many allowances should I claim on my w-4?

Question

I just had my first child this year. I am single and would be considered head of house hold. I claim 2 allowances right now but I was told I should only claim 1 so I get a bigger return when I file taxes next year and then I would claim my daughter and head of household. Im about to change it so I just want to make sure this is a good idea?

Answer 1

It's the same amount of money total.  If you claim a lower number of allowances than you are entitled to through the year, they take more out of each paycheck and you get it back as a refund.  If they take $10 a week more out of your paychecks, your refund is $520 bigger - 52 weeks times the $10 extra.

If your goal is a big refund, then sure, go ahead and claim fewer than you are entitled to.  If your goal is to get that same money earlier, in your paychecks, then claim more - with one child you can claim 5 and not owe when you file.

Answer 2

You can go to www.irs.gov and figure it out using their withholding calculator.  The advice to take less than you're allowed is commonly followed but really not a good idea.  Your "bigger return" is really just your own money that you have let the government hold for you all year without paying you any interest.  You'd be way better off to get the money throughout the year by claiming the right number of exemptions, and save some of it in an account that earns you interest.  People think it's so great to get a big tax return, but it's really only their own money that they could have had all along.

Answer 3

Are you looking for a bigger tax refund?  If so, then claim Single and 0 allowances on your W-4.  

If you are looking for a smaller refund, then you can claim additional allowances since you have more tax deductions and possibly credits for this year.