Deciding whether to claim 0 or 1 on your W4 form impacts your tax withholding and financial situation throughout the year. This choice influences whether you owe money or receive a refund when filing taxes.
How Withholding Affects Pay
The current Form W‑4 no longer uses “allowances.” Instead, your withholding is based on the information you enter in its steps (personal information, multiple jobs, dependents, other income, deductions, and any extra withholding). If you’ve heard “claim 0 or 1,” that’s older terminology. The modern equivalent is adjusting the relevant steps so your withholding is higher or lower.
Claiming more in credits or adjustments on the form (for example, entering eligible dependents in Step 3 or deductions in Step 4(b)) generally reduces withholding and increases take‑home pay, which can lead to a smaller refund or a balance due at tax time.
Leaving Step 3 blank and/or adding an extra flat dollar amount in Step 4(c) generally increases withholding, which can produce larger refunds and reduce the chance of owing at filing.
Employers remit withheld taxes to the IRS as a prepayment of your annual tax liability. If you do not have enough withheld during the year, you may owe additional tax and potentially an underpayment penalty when you file.
Factors to Consider Before Choosing
Choosing settings that mimic “0” (more withheld) or “1” (less withheld) on today’s W‑4 depends on your financial situation, projected income, and expected tax credits and deductions. If you need more take‑home pay for monthly expenses like rent or groceries, using Step 3 for eligible dependents or Step 4(b) for deductions can reduce withholding.
Consider your expected deductions and credits. Substantial deductions (such as mortgage interest or retirement contributions) and credits (such as the Child Tax Credit) can justify lower withholding because your ultimate tax bill may be lower.
Life changes—marriage, having a child, taking a second job, or starting a new job—can significantly alter your tax situation. For example, marriage may change your filing status and tax bracket, which can affect how you complete the W‑4.
Adjusting and Submitting an Updated W4
Updating your W‑4 helps keep your withholding aligned with your current situation. Changes like a salary increase, a new job, or a change in household dependents can affect your tax liability and may call for adjustments.
Complete the current W‑4 carefully, especially the sections for multiple jobs (Step 2), dependents (Step 3), deductions (Step 4(b)), and extra withholding (Step 4(c)), as these have the biggest impact on how much is withheld.
Once you’ve completed the form, submit it to your employer. They will process the update and reflect the change in a future paycheck.
Common Misconceptions
A common misconception is that W‑4 adjustments can only be made during tax season. In reality, you can update your W‑4 at any time to reflect changes like a bonus, a pay cut, a second job, or new dependents.
Another misunderstanding is that entering information to reduce withholding automatically results in penalties. Penalties arise when you haven’t paid enough tax throughout the year, not merely because you reduced withholding; the goal is to have withholding that accurately matches your tax situation. Using planning tools or getting professional advice can help you dial in the right balance.