Head of Household: In most situations on your tax return, you would only claim "head of household" filing status if you are unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependents, or other qualifying individuals.
Tax Credits: When figuring the allowable number of withholding allowances, you can take projected tax credits into account. For example, credits for child/dependent care expenses and the child tax credit may be claimed using the Personal Allowances Worksheet.
Special Note: If your income exceeds $950 and includes more than $300 of unearned income (i.e.; interest and/or dividends), you can't claim exemption from withholding -- if another person can claim you as a dependent on his or her tax return.
Instructions: If you are not exempt, go ahead and complete the "Personal Allowances Worksheet," in the middle section of page 1 of the w4 Tax Form.
The worksheets on page 2 are where you can play around to further adjust your withholding allowances based on:
Complete all worksheets that apply. While you can claim less or even zero allowances, for regular wages, withholding must be based on allowances you claimed and can't be a percentage of wages or flat amount.
Nonwage income: If you have a large amount of nonwage income, such as interest or dividends, consider making estimated tax payments using
Multiple Jobs or Two Earners: If you have more than one job or if your spouse is working, it may be in your best interests to determine the total number of allowances you're entitled to claim on all jobs using worksheets from only one Federal W4 Form. Typically, your withholding is most accurate when you claim all allowances on the W 4 Tax Form for the highest paying job and zero allowances are claimed on the other W4 Forms.
Doublecheck Your Withholding: Once your paychecks are reflecting your new W4 Tax Form changes, use Pub. 505 to see how the amount you are having withheld compares to your projected total tax for 2012. This is especially important if you earn over $130,000 as a single person or $180,000 if you're Married.
Reason For Form W-4: You should complete the form so the correct amount of income tax is withheld from your paycheck and you should fill out and turn in another one every year or when your status changes.
If you are "Exempt From Withholding:" Only fill out lines 1, 2, 3, 4, & 7 on the form and then sign it. Exemptions for 2012 expires on 02/18/13.
Keep in mind that if your income is over $950 or if it includes over $300 in dividends or interest, you can't claim exemption from withholding - if someone else claims you as a dependent on their return.