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What's the difference between allowances and dependent exemptions?
You report your personal allowances to your employer on Form W-4. Your employer will use the number of allowances you report to figure how much tax to withhold from your paycheck. The greater the number of allowances, the less tax your employer will withhold.
The amount withheld is payment for your tax liability, which will be determined when you file your return. If you withhold less than your tax liability, you'll usually owe when you file your return. If you withhold more than your tax liability, you'll receive a refund.
A dependent is an example of a personal allowance. On your W-4, you can claim one personal allowance for every dependent. You can also add to your personal allowances when you know some situations reduce your tax liability. Examples include: