Medicare and Social Security taxes are withheld at flat percentages of your earnings. You cannot adjust them so that fewer taxes are withheld from your paychecks. The same goes for state income tax withholding in some states. Federal income tax, however, is adjustable. The withholding depends on various factors, including the filing status and number of allowances you claim on Form W-4. If your budget requires more take-home pay, it's possible to adjust your withholding.
TL;DR (Too Long; Didn't Read)
You can use a variety of allowances listed on your W-4 to reduce the amount of tax that is taken from your regular paycheck. Be aware, however, that you will still be required to pay these taxes as part of your tax filing.
Where to Start
Begin by reviewing lines A through G of the personal allowances worksheet section of your current W-4 to see if you claimed all the allowances that you qualify for. Each allowance reduces the amount of your wages that are subject to taxation; the more allowances you claim, the less federal tax you pay.
Claim additional allowances on a new W-4, if applicable. For example, if you recently had a baby and your spouse won’t be claiming her on his W-4, calculate the amount of child tax credit you are due on line E. This is especially important for 2018 because the recent tax reform bill doubled the amount of credit from $1,000 to $2,000.
Even better, this is a credit that’s applied directly toward your tax bill. It is not a deduction that reduces the amount of your income that is subject to taxation. Make sure you qualify for this credit before you claim it. If you don’t qualify for it but still claim it, you’ll owe federal income tax when you file your tax return.
Take Credit Where Credit is Due
Take advantage of the allowances that married people are generally entitled to. For example, if you meet IRS child or dependent care expense requirements, such as caring for an aging parent, claim the appropriate allowance on line F. If you’re eligible for other credits, claim them on line G. If you intend to claim income adjustments or itemize deductions on your tax return, complete the deductions and adjustments worksheet on page 3 of the W-4; this process reduces your withholding. Add up your allowances and put the total on line H.
Single and Married Filing Statuses
Include your filing status on line 3 of the employee’s withholding allowance certificate section. If you check “Married,” you will be taxed at the reduced married rate. If you check “Married, but withhold at higher Single rate,” you will be taxed at the greater single rate. Select the former if you’ll be filing a joint tax return with your spouse. Choose the latter if you plan to file separately. Since you want more take-home pay, it might be best to choose “Married” and file a joint return with your spouse.
Transfer the total allowances from line H of the personal allowances worksheet to line 5 of the employee’s withholding allowance certificate. Sign it, date it and give it to your employer in time for the pay period that you want the change to happen.
Sometimes, married filing separately might be best, such as if you have large medical expenses that are not reimbursable. For 2018, you can still deduct qualified medical expenses that exceed 7.5% of your adjusted gross income. It’s harder to make that threshold if you file jointly, as this requires you to combine your income with your spouse’s. Beginning in 2019, you will only be able to deduct the amount of unreimbursed allowable medical care expenses that exceeds 10% of your adjusted gross income.
Adjusting Your State Withholding Tax
If your state uses a withholding system that is comparable to the IRS’s, you can adjust the allowances on your state tax form too so that less money comes out of your paycheck. As with federal income tax, be sure that you qualify for each allowance you’re claiming.
- Sometimes, married filing separately might be best, such as if you have large medical expenses that are not reimbursable. You cannot deduct medical expenses from your tax return unless they exceed 7.5 percent of your adjusted gross income. It’s harder to make that threshold if you claim you file jointly, as this requires you to combine your income with your spouse’s.
- If your state uses a withholding system that is comparable to federal income tax, adjust the allowances on your state tax form so that less money comes out of your paychecks. As with federal income tax, ensure that you qualify for the allowance before claiming it.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.