Tax Withholding and You: How to Get More Out of Your Paycheck

As another tax season came to a close, it hit me how there’s a problematic culture in America regarding tax refunds. As an Enrolled Agent of almost a decade, I find it worrisome that people get into competitions among friends and co-workers over who got the biggest refund: it not only brings out the numerous shady services that claim to offer bigger refunds than their competitors (a reputable tax professional will only promise you that they’ll do whatever they legally can to minimize your tax liability, not claim they can get you a bigger refund than the person down the street) but it’s likely there’s money right in your paycheck that is better off in your pocket than sitting in the Treasury, interest-free.

The first thing to know about minimizing your tax liability is that there’s a strong chance your income tax withholding is unnecessarily high. Let’s examine the withholding process, and how the withholding amount is determined.

Withholding Tables & the Misconceptions About Allowances

Every year, the Treasury and state taxation departments draw up withholding tables based on filing statuses using numbers called allowances.

IRS pub 15

Your paycheck’s skeleton! Internal Revenue Service, Publication 15

These tables are indexed according to filing statuses (more on that later) and how often you get paid. Allowances are then chosen by you when you fill out on an IRS Form W-4, Employee’s Withholding Certificate, and the state equivalent (such as New York’s IT-2104.) These forms must be filled out whenever you start a new job or would like to change your withholding at your current job.


Most of the time, the worksheets above and below this piece of the form are unnecessary. The principle is simpler than it looks.  

Internal Revenue Service, Form W-4

Allowances are numbers tied to how much tax gets taken out of your paycheck. Allowances tend to be based on circumstances that lead to lower taxes such as having dependents, owning your home, or being a student, and the more allowances you claim, the less gets taken out in taxes. For instance, most unmarried people earning less than $40,000/year with relatively simple financial situations tend to withhold at Single – 0 or Single – 1 which leads to a larger withholding than necessary.

Check last year’s tax return and compare the amount on the line that says “Tax” (line 44 on Form 1040, line 28 on Form 1040A, and line 10 on Form 1040EZ) to how much you have withheld. If there is a huge disparity and you get most of the money back you don’t need as much taken out.

I’ve frequently heard on the job, “My cousin’s barber’s psychic told me I should just enter 0 on that form, that way you get a bigger refund!” Yes, but then you also get less money immediately available to use. Why have that money sit in the Treasury for almost a year, not earning you any interest or making you a bit more comfortable when bills arrive?

There is also a common misconception that you can’t claim more than one allowance on a W-4 if you don’t have any of the above situations, or that the number of allowances is based on your number of dependents, and both assumptions are untrue. However, it’s unlikely you will attract any taxing authority’s attention unless you enter an egregious number (which would be virtually any number greater than 10 for most incomes) of allowances on your withholding certificates.

Under-withholding is possible and does carry a penalty if the IRS and/or states determine you didn’t pay in enough during the year (which for most people means owing over $1,000 at tax time), but chances are that if your wages or salary are your only or primary source of income, and you typically get most of your withholdings back, you don’t need to have as much withheld to begin with.

Make Sure Your Filing Status is Correct!

Are you withholding taxes using the correct filing status, as well as filing your tax return with the correct status?

The basic filing statuses are single, married filing jointly (MFJ), married filing separately (MFS), and head of household. Single and MFS will have higher taxes withheld than MFJ. Head of household means that you are not married and have at least one qualifying dependent, who is either a qualifying child or a parent you support. If you configure your withholding based on head of household status then you will have less money withheld than single and MFS. Qualifying widow(er) is a rarer filing status for surviving spouses in which you have at least one qualifying child, and you will receive many of the same tax benefits as MFJ.

However, the reason why filing status is an important distinction to make is because I’ve frequently seen heads of household withholding as single, or even filing as such, and it’s not giving them the tax relief to which they are entitled such as a larger standard deduction than single. MFS filers also tend to file as single, and, when doing so, they risk incurring a penalty and erroneously receiving benefits to which they are not entitled such as claiming the Earned Income Tax Credit which single filers can claim, but MFS cannot. Many people also continue to have their taxes withheld using the single rates after they get married (or the other way around if they get divorced) then forget to change their withholding.

Making sure you’re using the correct filing status, and therefore the right withholding table, will eliminate headaches! My years of experience in tax practice have shown that clearing up confusion over filing statuses makes both withholding calculations and tax time easier.

How Do I Know How Many Allowances Are Right For Me?

Those worksheets on the withholding certificates are like hydras: slay one head, six more annoy you while the other one just grew back. Fear not, though: paycheck calculators will burn that beast’s heads!

First, how often do you get paid? Most people get paid weekly or biweekly. There are two separate tables for those frequencies so make you got the right one. Select your state; most states have an income tax, and don’t forget local withholding either, such as if you’re a New York City or Philadelphia resident.

Next, enter your gross pay per paycheck, not your take-home pay. Your paystubs should show the amount of your gross pay prior to FICA and income tax withholding.

For example, Tina Taxpayer earns a salary of $39,000. She’s a single NYC resident and doesn’t have any other income. She gets $1,500 gross pay every two weeks. Using the 2013 tax rates, and withholding at Single – 0 across the board, here is what her calculator looks like:


© Symmetry Software, Inc.

Since she doesn’t take any special deductions or have dependents, Ms. Taxpayer’s tax liabilities are $3,908 to the IRS, $1,695 to New York State, and $972 to NYC. Under 0 allowances, $5,128.76 was withheld by the IRS, $1,728.74 by the state, and $1,087.06 by the city resulting in a federal refund of $1,221 and state refund of $149.

Under 2 allowances, $3,903.64 is withheld to the IRS, $1,599.78 to the state, and $1,009.06 to the city, resulting in two minor tax liabilities: $4 to the IRS and $58 to New York. These are liabilities too small to incur underpayment penalties, and very close to breaking even. This also frees up an extra $110.16 a month for Ms. Taxpayer, or $1,321.92 for the whole year. If your total W-2 income is less than Ms. Taxpayer’s as well, chances are you can have less withheld for similar results.

Try playing around with allowances on both the federal and state/local levels to identify an amount with which you will be comfortable. In my professional opinion, it’s best to come close to breaking even at tax filing time. Whether the results are a small refund or negligible amount owed like in the example, it’s money best off available to you throughout the year. Check out which number of allowances work best for you and your individual tax situation and cash flow, and what you’d be comfortable having withheld or paid at tax time. The amount can vary depending on what kinds of deductions and credits you qualify for and if you have other income, but I hope this information helps struggling wage earners who don’t want to wait until tax time to get some relief!

CIRCULAR 230 DISCLOSURE: Any U.S. federal tax advice contained in this writing (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.


Rachel Presser, EA
Rachel Presser is a fifth-generation Bronxite who got displaced a few times. Raised on Dr. Demento and off-off-off-off-price store books and clothes, she decided to embrace being constantly other-ed. A long-time disciple of New York's underground music scenes and omnipresence in its alt cultures, she would've died laughing had she known upon graduating high school that she would eventually become a federally-licensed tax law specialist with two accounting degrees and an escapee of Wall Street. She also co-runs point-and-click adventure outfit Himalaya Studios as CFO and producer and is a slave to their in-house debugger, Yael.
  • botenana

    I LOVE this. I always try to tell my clients this information but they look at me like I’m crazy. One thing I hear quite often is “But i won’t have cash to take advantage of the tax refund sales.” Serious side-eye. Such a great break-down. Like you said, the IRS doesn’t pay interest on what they hold, so why give it to them? If you’re just upping your withholding so you can have a huge check to blow once a year, your financial situation might need more examination than you think.

    Seriously, thanks for writing this!!!!!!

    • nyhcmaven84

      Yep, I find the whole “wait til refund time” culture to be really problematic. I know that at the end of the day it’s up to the client, but I see so many cases of people getting thousands of dollars all at once when they could’ve used the money earlier. Thanks for weighing in!

  • Lex


    I am so glad to see this because let’s be honest, you wouldnt give your savings to a bank for no interest so why the IRS?

    Can we have this reposted every year around tax season?

    • nyhcmaven84

      That’s up to the editors, but I’d love to post a new piece on withholding every tax season!

  • Ali

    FYI: Rachel is going to be doing more articles for us a tax/finance guru, so if you have specific questions you’d love to see her address, please post your questions here in the comments or e-mail me at

    • nyhcmaven84

      I think retirement plans should be the next topic! It’s something that a lot of young people and women specifically are getting stiffed on these days, that I’d love to address.

      • Ali

        I absolutely love this comment, because guess what we’re planning to have Rachel tackle next? Yup, you guessed it, she wants to address retirement plans.

        • nyhcmaven84

          Heh, this is Rachel 😉
          I should probably make a separate Disqus for the finance articles…but come now, who doesn’t financial advice from a blueberry poptart with teeth? :)

          • Ali

            I don’t know if I’ll ever get real names & online names straight 😉

          • Whosthatlady?

            Frankly, I think financial advice from a blueberry poptart with teeth would be less scary and I’d be more likely to listen! :)

  • TheeLoveCats

    This is one of those articles that is basically a godsend. Such good information to know! Yay thanks for publishing this!

    • nyhcmaven84

      You’re welcome! :)

  • JulaiOhMy

    This is great information. I’ve probably been filling out W-4s incorrectly for years now.

    • nyhcmaven84

      The W-4, like many IRS forms, looks more horrific and complex than it really is. I specifically wanted to address the misconceptions about allowances as “dependents” since people confuse them…but it really all goes back to numbers on a table. All there is to it. :)

  • Turanga Leela

    Thank you for this!!

    • nyhcmaven84

      You’re welcome, glad peeps are liking this so far!

      • Daenerys Targaryen

        WAIT, I have a question!! I don’t have any health insurance this year (working on it). So, I know for my 2014 taxes, I will probably have to pay the whole “healthcare tax” when I file again, which I’m totally cool with. If I add 2 exemptions, would that fuck me up??

        Right now, I file as single, no dependents. Not head of household. My taxes are super simple, and I usually just use an online service, like TaxAct or TurboTax.

        From what I’ve read, for me at least, the healthcare tax will probably take half of my return. The past few years, I’ve gotten about $1,200 back, while they took out close to $5G’s. I think the tax is supposed to be 1% of your income, but I’m not sure if they’re talking net/gross…?? My income is actually somewhat lower than the example you used, and I am hourly.

        Tbh, I really don’t care about getting a huge refund, and if I had to pay back a few bucks to the IRS/State of NJ, I wouldn’t mind. I really need the extra money in my pocket NOW, so I can finally and hopefully buy my own health insurance! I just don’t want to be hit with any underpayment penalties or have to pay the healthcare tax out of pocket. Do you have any advice?? Thank you for this article!! :)

        • nyhcmaven84

          I think you mean allowances– exemptions are a different number!

          Try the calculator with 2 allowances, with a best guess estimate of a typical week’s gross pay not taking account of overtime.

          Per the “shared responsibility payment”…I won’t say anything definitive on it now because that law literally keeps updating every week. I probably won’t see the preview of the forms until later this summer, but my basic understanding right now is that people will fall into 3 categories: People who meet essential minimal coverage, those who don’t and are exempt from the shared responsibility payment, and those who are not exempt.

          There are MANY what-ifs.

          However, if you do not meet any requirements to be exempt from the SRP, the absolute max that you can assessed is the greater of 1% of your income above tax filing threshold, or the cost of a Bronze plan in your state. I’m not sure what NJ’s plans are like, but in NY the cheapest Bronze plan without any subsidies is $307/month.

          The 1% test is gross income above the minimum filing threshold: For example, if your gross income is $30,000 in wages and you file as single with no special statuses (self-employed, blind, clergy, to name a few that have different thresholds) then the threshold is $10,000 for 2013. $20,000 is the gross amount above the threshold and 1% = $200.

          I don’t want to give any definitive advice on being exempt from this payment as there hasn’t been enough information published– but that’s how it would get calculated. It wouldn’t wipe out your refund, but it would be pretty unwelcome!

          • Daenerys Targaryen

            Yes, allowances! Okay, I am going to try and see what my taxes look like with 2 allowances, and if that works, I will change my W4. I much prefer having the money now than waiting until next year.

            I am hoping to get healthcare soon, so hopefully I will be exempt from the “shared responsibilty tax” but I will definitely keep an eye out for more info on it.

            This article was soooo helpful. Thanks so much!! You’re awesome!

  • Whosthatlady?

    LOVE this article! Thank you! My taxes were a mess this year and my W4 had everything to do with it. For real, thanks for this information!

  • bg210

    great article !.. wondering if someone can help me.. just started a new job .. i want to maximize my take home pay what exact should i write on my w4 .. my first check wast about 530$ but after taxes i only got back 390$ ..i have to change that no way should 140 be missing from my check .. i get paid weekly if that helps

  • Presencia Luciano (Prez135)

    Just found this article it sounds great but I still need help. I just started working after 10 years as a stay at home mom and not sure how to fill out my w-4 & it-2104. My husband and I are common law and we live in brooklyn,ny. He files as head of household and claims our 2 children and myself. But not sure how I should file. Should I put single and claim myself? I need help asap.

  • feministmother

    Why does NY State tax our tax refund in the following year? Hasn’t that money already figured into the original tax amount charged?

  • Oscar

    I need help! Just started a job and have three options to choose from, exempt, withold, and non resident withhold, I don’t know which to choose. so clueless right now. Also, if it helps, I’m from NYC

  • JQ

    Im a single mother to a ten year old. How should I be filing when it comes to federal and states. I also put my mother down as a dependent she receives retirement benefits.

    • Rebecca Chance

      You should be filing as head of household, with 2 or more dependents. As many people as reside in your house including yourself.

  • JQ

    what exactly is allowances versus dependent.