what is withholding allowances

A withholding allowance is an exemption that reduces how much income tax an employer deducts from an employees paycheck. It is filled out on Form W-4, which is used to determine the amount of federal income tax to withhold from an employees paycheck. The amount of withholding is based on a taxpayer’s filing status and the number of withholding allowances they claim. The more allowances an employee claims, the less income tax will be withheld from their paycheck, and vice versa. Employees determine their withholding allowances using IRS Form W-4, which they fill out when they start a new job or when their personal or financial situation changes. An individual can be exempt from a withholding allowance, but it’s not easy to receive that status. You can claim the withholding exemption only if you had a right to a refund of all federal income tax withheld in the prior year because you didn’t have any tax liability and you expect the same for the current year.