When you start at a new job, you fill out a W-4, the tax forms that tell your employer how much tax to set aside for each employee. Generally speaking, the more allowances you claim, the more money you keep in your paycheck during the year--and the more the IRS may come looking for at tax time. Unless the IRS has told an employer how many allowances a certain worker is allowed to claim, employees are allowed to change the number of withholding allowances and marital status on revised W-4s throughout the year. Just make sure the allowances are legit: A fine awaits those caught exaggerating allowances.
It is a misdemeanor federal offense to falsify withholding allowances. According to the IRS, a $500 fine can be applied to those who are caught knowingly raising allowances beyond a level that can be proven, resulting in less tax being withheld. If the IRS determines that an employee has falsified marital status or the number of dependents to pay less in taxes, the amount under-taxed is also likely to be sought.
Using the Calculator
Use the IRS's withholding calculator to determine the level at which you can legally set your allowances. Navigate to the IRS link in the Resources section, read some information about who can legally change their allowances during the year, and click on "Continue to the withholding calculator." Fill in the personal and financial data on the subsequent form pages, including data concerning your eligibility for various federal income tax credits, and see the maximum number of allowances you can claim on your W-4.
Change my Withholding
If you have to change your W-4 form, to lower or raise your withholding allowances, you can fill out a new W-4 and submit it to your employer, usually through your payroll and/or human resources department--the earlier in the year, the better. Fill the form out online by navigating to the third link in the Resources section. You can fill out the fields online and print the form out to sign and submit.
When Can I Legally Do This?
Numerous reasons exist for someone legally changing their W-4 allowances. Marriage, divorce or the birth or death of a child are common reasons. Others include a new home, retirement, bankruptcy filing, new student loans, earned income credit qualification, taxable revenue changes in the household or recent charitable contributions. For a full list of withholding allowances and legal advice for filling out the W-4, see the IRS's Publication 919 in the Resources section.