Allowances will be increased if you claim yourself, a spouse or children as dependents. Paying childcare expenses may also add to your number of allowances as will non-wage income like dividends or interest.
If you itemize deductions on your taxes, you will want to complete the Deductions and Adjustments Worksheet to see if the level of your deductions indicates that you could decrease the amount that you withhold. The IRS Withholding Calculator walks you through the process of evaluating your situation to determine appropriate levels of withholding.
Once the proper number of allowances and any additional amount of withholding is determined through use of these tools, the process of completing your W-4 is quite straight forward. Boxes 1-4 contain your personal data, box 5 is where you enter the number of allowances, box 6 is the place to put any additional amount you would like withheld and box 7 is only for the rare person who doesn't need to withhold due to a very limited tax liability.
Changing Your Deductions
Even if you haven't just landed a new job, you can file a new W-4 with your employer if your life situation and/or deductions have changed or if you have found that you have too high a tax bill when you file or too large a refund.
A critical ingredient in the process will be your philosophy regarding paying taxes, whether you would prefer to pay as you go throughout the year via withholding or at the end of the year. Some wage earners prefer to withhold more to lessen any tax surprises at the end of the year and in effect, force some savings if they are due a refund. Others want to maximize their weekly/monthly paychecks and therefore increase their allowances and the amount withheld.
Read More: How to Fill Out a W-4 Form