A withholding allowance is used in the formula when figuring the amount of income tax to be withheld from each paycheck you receive. The range of withholding allowances you can choose are from 0 up to a maximum of 10. The more allowances you have, less money will be withheld for taxes. Your withholding allowance can be increased or decreased by completing a Form W-4 that you sign and give to your employer. You have the right to do this at any time.

To decrease the amount of money being withheld on your checks, you can increase the number of withholding allowances. The maximum number of withholding allowances is 10. Some payroll programs will not allow more than 9 withholding allowances. But be careful, if you underpay your tax liability you end up owing at the end of the year and be subject to a penalty and interest charges by the IRS.

You can claim an exemption from withholding ONLY if:

• Your income will be less than $900 and does not include more than $300 of unearned income (for example, interest at a bank), and;
• Another person cannot claim you as a dependent on their tax return.
  
  Note: This situation is very rare. The best way to reduce your withholding is to increase the number of withholding allowances.

There are two ways to increase the amount of taxes withheld on your check. You can:

• Decrease the number of withholding allowances you claim on the Form W-4, or
• Enter an additional amount on line 6 of Form W-4 that you want withheld from each paycheck.