What is a withholding allowance?

A withholding allowance was a number you claimed on an old Form W-4 to lower the federal tax taken from each paycheck. Each allowance shielded a set amount of yearly pay from withholding. The federal W-4 dropped allowances in 2020, but many state withholding forms still use them.

The current W-4 asks for dollar amounts instead: credits for dependents, other income, deductions and any extra tax per check. An old W-4 already on file stays valid, but any new one you hand in uses the current version.

State allowances still work the old way. On California's DE 4, each allowance cuts state withholding by $168.30 a year. On Illinois' IL-W-4, each one takes $2,925 off taxable wages. More allowances means less withheld now and a smaller refund later. See how many allowances to claim and the withholding allowance entry.