As Many as Allowed

• Tax withholding allowances, commonly mistakenly referred to as deductions, reduce the amount of money your employer withholds from your paycheck for income taxes. To minimize the amount withheld and prevent yourself from having extra withheld, you should claim as many allowances as you are entitled to based on your W-4 personal allowances worksheet.
  
  

Claim Fewer for Other Income

• If you have other income that does not have taxes withheld from it, such as interest or dividends, you should claim fewer allowances on your W-4 form to avoid underwithholding and the tax penalties you would owe for not having enough withheld.
  
  

Bottom Line

• Unless you have significant other income, or prefer to receive a large refund check at tax time, you should claim as many allowances as you are entitled to claim. This will minimize the amount of overwithholding. Even though you get the extra back when you file your tax return, by minimizing overwithholding you can have that money in your pocket after each paycheck instead of having to wait.