How withholding allowances used to work
Each allowance you claimed represented a chunk of income, around $4,200 for 2018, that your employer wouldn’t withhold tax on. Claim more allowances and your paycheck grew, but so did your risk of owing money at tax time if you claimed too many. You’d typically fill this out the first time you started a job.
Why the IRS got rid of withholding allowances
Allowances were tied to the personal exemption claimed on your tax return. However, the Tax Cuts and Jobs Act reduced this deduction to $0 starting in 2018. With that number gone, allowances no longer had a real dollar amount to convert to, so the IRS redesigned the W-4 to work without them.
What replaced allowances on today’s W-4
Instead of one abstract number, the current W-4 asks for real figures: your number of dependents, other income, deductions you plan to claim, and any extra amount you want withheld each pay period. The formula uses those numbers directly: there’s no allowance conversion involved.
Do any states still use allowances?
A few states, including Georgia, still use their own allowance-based withholding form even though the federal W-4 doesn’t. Check your state’s department of revenue if you’re not sure which version applies to you.
How to make sure your withholding is right today
Run your numbers through the IRS’s Tax Withholding Estimator any time your income or household changes, or see our guide to estimating your income tax for more. If you haven’t touched your W-4 since before 2020, it’s worth checking now, since under-withholding is one of the most common reasons people owe taxes at filing time.
