When you start work for someone, you will have to fill out a “W4” form and choose the number of personal exemptions you will be taking. In general, you’ll get one personal exemption for yourself and another for every person–spouse, parent or child–you support. The more personal exemptions you choose on the form, the less money will be withheld from your paycheck. If you rightfully expect certain levels of tax deductions from your income over the course of the year, you may be legally entitled to claim even more exemptions on the W4 form.
If you claim more exemptions than you are entitled to, your employer will withhold too little tax. When the times comes to file your tax return, you’ll discover that you’ll have to send the government something instead of getting a refund. All that really means is that you got the money in larger paychecks instead of giving the government what amounts to an interest free loan. If the gap between the amount of tax you owe and the amount of tax withheld is too great (in your favor) the IRS will charge you a penalty. The trick is to claim just enough exemptions so that the amount withheld is about the same as the tax due. That way, you get to use and earn interest on the greatest share of your own money.
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