My employer allows us to "claim 10" 2x a year, what does this mean and are there any negatives to do this?

Question

Will it make any difference in my yearly tax return?

Answer 1

It is a violation of the law to claim more allowances than you have but it is rare that anything comes of doing so less you owe tax at the end of the year. If your withholding is more than $1,000 short of your tax liability you will be subject to both interest and penalty. If your tax liability is less than what you have withheld it is likely that nothing will happen.

Answer 2

Your employer has NO say in the matter whatsoever!

You may claim as many withholding exemptions as you are entitled to based upon your individual situation. That isn't necessarily related to how many dependents you have as the number of dependents is only ONE factor in calculating your withholding allowances. For example, if you had $50,000 in itemized deductions you could easily claim 10 withholding allowances yet have zero dependents.

If you claim too many withholding allowances you'll have a tax bill to pay at the end of the year. If that bill is more than $1,000 you may also face penalties and interest for underwithholding. (There are a few other "safe harbor" exceptions to the rule as well but that's another question entirely.)

At any rate, your employer is required by law to accept whatever you claim on your Form W-4 whenever you file an updated one with them and withhold tax based upon the most recent Form W-4. They can't "allow" you to claim extra, nor can they refuse to accept any Form W-4 that you file even if it claims 20 allowances.

If the IRS has a problem with your withholding situation, they'll be in touch with you directly. They get the data on withholdings from your employer when your employer files their payroll tax returns and if they think that something funny is going on they may ask your employer for a copy of your Form W-4 and then ask you to justify your position. If you can justify your withholding claims then you have NOTHING to worry about!

Answer 3

When you "claim 10", it reduces the amount of withholding on your paycheck, so your net pay for those weeks is higher. But it will reduce the amount of your tax refund you get at the end of the year.

If you end up owing taxes at the end of the year, there may be penalties and interest if you owe over a certain amount, depending on your situation.

Answer 4

It is not legal to claim more exemptions on your W4 then you are entitled to. If your employer is automatically doing it that is also illegal. If you end up owing over $500 on your tax there will be penalties.