Question

What’s the difference between an allowance and a dependent exemption?

Answer

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.

A dependent exemption is an amount you subtract from your Adjusted Gross Income (AGI) on your tax return to arrive at your taxable income. The number of exemptions you will take is one factor used in arriving at the number of allowances on your W-4

In short, an allowance is used by your employer to calculate how much to withhold from your paycheck, and a dependent exemption is used on your tax return to calculate your actual tax liability.

Related Topics

Related Resources

Claiming Foster or Adopted Child as Dependents

Can you claim your foster or adopted child as a dependent? Learn more about this issue and get tax answers at H&R Block.

The Advantages of Filing Taxes Early

It's time to start thinking about filing your taxes early. Discover the key reasons to file an early tax return with the experts at H&R Block.

Minimum Charitable Contribution Deduction

What is the minimum charitable contribution that is eligible for a tax deduction? Learn more from the tax experts at H&R Block.

Number of Dependents

Does the number of dependents on your W4 need to match the number on your tax return? Learn more and get tax answers from H&R Block.