It's tax season, which means millions of Americans are scrambling to gather all the documentation they need to file their returns and, many will hope, receive a refund check. For many taxpayers, the amount of that refund will be affected by how they filled out a form separate from the actual tax returns, the W-4. That particular form is typically filled out after a person begin a new job and always raises a question worth internally debating: Should I claim 0 or 1 on my W-4?
The answer comes down to personal preference, according to Lisa Greene-Lewis, a Certified Public Accountant (CPA) and tax expert who spoke to Elite Daily to explain more about the W-4. Greene-Lewis is a CPA at Intuit's Turbo Tax, the tax prep software that millions of Americans use each year to help file tax returns. Turbo Tax asks a series of question meant to simply the tax filing process, while offering different versions suited for different types of taxpayers, and offering live salutation with CPAs.
The W-4 is the IRS form that employers hand to employees. How employees fill out the forms determines the amount of taxes withheld by the government from each paycheck. The purpose of the form is to determine that amount of "allowances" an employee claims.
The number of allowances a taxpayer can claim depends on a number of different factors about one's financial picture.
"You get an allowance for yourself, and if you're married you get an additional allowance," Greene-Lewis explains in an interview with Elite Daily. Greene-Lewis also notes the recent changes to the types of allowances people can claim, which have come as a result of Republican tax reform. "Because of the changes in the law, you don't get an additional allowance for your kids anymore, but now you get additional allowances for the child tax credit ... So you would just walk through the worksheet and it asks you different questions, and it has you enter a use single quotes, not double '1' for yourself, a single quotes '1' for your spouse and different numbers up to four for the child tax credit, depending on your income."
So, the question of which number any taxpayer should use on their W-4 is essentially a question of whether they should claim their allowances. According to Greene-Lewis, there are advantages to taking either fewer or less.
Taking fewer allowances, for example, helps in avoiding owing the government money after filing tax returns.
"The advantage of taking fewer would be that you're gonna have more taxes withheld, so you may not owe money," Greene-Lewis says. "This would be an advantage especially for 2018 taxes, because there are lower tax rates with the new tax law and people are going to see more money in their paychecks for 2018."
On the other hand, people who claim more allowances are likely to see more cash deposited into their bank accounts over the course of a year, instead of a bigger lump sum that they may receive in a refund check.
"The advantages of taking more allowances is you would be able to have less money withheld from your paycheck, so would be seeing more in your paycheck. And usually people that are able to take more allowances are the ones that have more deductions," she says. "So, people that itemize deductions, typically homeowners, have those deductions because they have home mortgage interest and property taxes that they can deduct. So they would definitely see an advantage to having more personal allowances."
While a different number of allowances are available to different types of taxpayers, the answer to whether or not they should actually claim those allowances should come down to their spending habits, Greene-Lewis says.
"It depends on the person and how you save money."