For 2018, one (1) withholding allowance is equivalent to $4,150. Employers compute how much federal income tax to withhold from your paychecks by using the following formula:

• W-2 Box 1 wages ($4,150 * # of allowances you claimed on Form W-4) = Net taxable wages
• Federal income tax withholding is then computed by applying the appropriate tax rate bracket to the net taxable wage amount

Assume you have always claimed two (2) allowances simply out of habit, and you are in the 24% marginal tax rate bracket. You typically end up with a reasonable refund when you file your tax return each year, which means your employer is likely withholding too much federal income tax from your paychecks (i.e. you should be claiming more than 2 allowances).

1. If you had asked your employer for a new Form W-4 at the beginning of the year and decided to claim five (5) allowances instead of two (2), how much additional take-home pay would you have had? See the bullets below for assistance with your calculations:

   • Your change in allowances would be 3 (i.e. from 2 to 5)
   • Multiply that amount by $4,150
   • Multiply that amount by your marginal tax rate of 24%

2. If instead you decided to claim zero (0) allowances, simply because you wanted the biggest possible tax return refund, how much would your tax return refund have increased if you went from two (2) allowances to zero (0) allowances at the beginning of the year? See the bullets below for assistance with your calculations:

   • Your change in allowances would be 2 (i.e. from 2 to 0)
   • Multiply that amount by $4,150
   • Multiply that amount by your marginal tax rate of 24%

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