Dear Tax Talk,
Is it legal to decrease your tax withholdings? Someone at my work told me that just about everyone does it so they don’t pay as much money in taxes. He told me it doesn’t affect his tax refund at all, even though he claims 30 W-4 allowances. I don’t understand how this works. Thanks.
— Katya

Woman working in modern office | Hero Images/Getty Images

Hero Images/Getty Images

Dear Katya,
As an employee, you complete Form W-4, Employee’s Withholding Allowance Certificate, so that your employer can withhold the correct federal income tax from your pay. It is legal to submit a new Form W-4 as your personal or financial situation changes, such as a change in marital status, the birth of a child, a spouse going to work and so on. And actually, you can adjust your withholding at any time.

In fact, IRS Commissioner John Koskinen recently suggested that taxpayers consider getting “a smaller refund next year and more take-home money now.” So do yourself a big favor and take a look at your personal situation as you evaluate the Form W-4, along with the instructions. Keep in mind that every situation is different for each taxpayer.

When you look at the Form W-4 instructions, you will see that there is a “personal allowances worksheet.” This is where you calculate the number of personal allowances you are claiming. The key fact to remember is that the higher the number of allowances you claim, the less federal income tax your employer will withhold. There is an additional worksheet to complete if you plan to itemize deductions on Schedule A or claim certain credits or adjustments to income. And finally, there is a “two-earner/multiple jobs worksheet” which might need to be considered.

I don’t know how your co-worker is claiming 30 Form W-4 allowances, though. He must not be following the instructions correctly.

So check your year-to-date withholding and make a change if you are expecting a large refund. It is really important if you are planning to claim the earned income tax credit or the additional child tax credit because the IRS is now required by law to withhold all refunds on those returns until Feb. 15. That will give it time to detect and prevent tax fraud.

I am so happy to see that you took the step of confirming the workplace chatter by sending in this question. Thanks, and all the best to you.

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