Q. First, please explain the notes on line G of the W4 that talks about what to put on the form for children using different income levels. Secondly, I claimed 8 allowances last year and there were no taxes taken out of my check.  This year when I complete the form it shows 9 or 10 (bought a house).  How does that work, if 8 had already put me at no taxes?

A. See form W-4 before reading this explanation.  Most of the credits enacted in the last few years are phased out for higher income earners.  Line G of the Form W-4 deals with child tax credits and these credits are no different. The credit begins to phase out when Adjusted Gross Income (AGI) reaches the following levels:

  • Married Filing Joint: $110,000
  • Single and Head of Household Filers: $75,000
  • Married Filing Separately: $55,000

To accommodate the reduction in the credit, you need to reduce the number of allowances you claim towards that credit. This makes your withholding increase but is correct because you will receive less credit and owe more in tax.  Therefore your withholding needs to increase anyway.  Those under the income threshold will still be able to claim extra allowances since they receive the full credit.

Regarding your second question, the number of allowances you claim should not be based on the number it takes to get your withholding to zero for federal purposes.  In your case, you bought a house.  If the mortgage qualifies, that means you now get to claim property taxes and mortgage interest on the itemized deduction form of the 1040.  Normally, this reduces taxable income and thus you get to claim more allowances.   If you think about it, now you have extra deductions available to absorb any salary increases that may happen in the future.  Talk you to tax preparer or CPA if you have specific questions regarding your situation.