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Withholding Allowance

Definition

A number you claim on your tax form that determines how much tax is withheld from your paycheck.

What to consider

  • Review your allowance to ensure the right amount is withheld for taxes.
  • Adjust it if your income or family situation changes.
  • Monitor your pay stubs to avoid surprises at tax time.

Real world scenarios

  • After reviewing his paycheck, Adam adjusted his withholding allowance so that the right amount of taxes was deducted, ensuring he wouldn’t owe a large sum at tax time.

Related terms

Income Tax
Form 1040
Alternative Minimum Tax (AMT)
Tax Loss Harvesting
Tax Refund Anticipation Loan

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