Are Regular Withholding Allowances Still Used on Form W-4?

Regular withholding allowances used to be a standard method that employees used to reduce federal income tax withholding on their Form W-4. The system was based on the workers’ personal and dependent exemptions, allowing individuals to potentially increase their take-home pay.

However, tax laws underwent significant changes in recent years, turning withholding allowances into a legacy system. Still, some employers and employees are wondering about the current situation surrounding withholding allowances, as well as their impact on payroll, taxes, and deductions.

This article will cover everything you need to know about these allowances, Form W-4 changes, and payroll withholding as it is today. Plus, we’ll give you some tips on how to ensure accurate withholding.

Regular Withholding Allowances: Are They Still Used?

Regular withholding allowances are not used anymore. They were part of the old system in versions of Form W-4 before 2020. The system allowed employees to claim one or more allowances, based on personal and financial factors, like the number of dependents or expected tax credits.

Withholding allowances were used due to their simplicity, as they allowed employees and payroll departments to easily estimate tax liability. Payroll departments were using data provided by the employees and tables furnished by the IRS for withholding estimate calculations.

However, the Tax Cuts and Jobs Act (TCJA) of 2017 overhauled the tax system. It changed how personal exemptions work, making regular withholding allowances obsolete. This also resulted in a redesign of the Form W-4 to account for the changes.

It’s important to note that employees who have been working for the same company since before 2020 do not have to update their forms. Their companies can still use the legacy W-4 allowances provided in old forms for payroll withholding calculations.

As a result, the term “allowance” still appears in conversations, documentation, and payroll software interfaces. This can cause confusion, especially among new employees who aren’t familiar with the outdated system, making it all the more important to understand how it had worked and what changed.

On the other hand, any employee hired after January 1, 2020, or a worker who wants to update the information on their Form W-4, must use the updated and redesigned form that does not contain allowances. The goal of a modern Form W-4 is to enable simpler and more accurate withholding calculations.

This makes it critical for payroll departments to transition to the modern system, as it is aligned with the latest tax brackets and higher standard deductions implemented to offset a lack of allowances.

What Changed With Form W‑4 Redesign

The biggest change in the 2020 Form W-4 redesign lies in the removal of federal withholding allowances. The main reason behind it was to simplify the process of filling out the form and to make withholding estimates more data-driven.

For starters, the name of the form changed from the “Employee’s Withholding Allowance Certificate” to “Employee’s Withholding Certificate” to reflect the new contents of the document.

The pre-2020 Form W-4 included a personal allowances worksheet, where you could claim one allowance per item, based on your filing status (single, married filing jointly), child tax credit, credit for other dependents, and so on. Each exemption was tied to a specific amount of dollars.

However, the Tax Cuts and Jobs Act changed the amount of personal exemptions to zero, rendering W-4 allowances obsolete. Under the new system, Form W-4 requires specific amounts to be included in place of blanket “yes or no” allowances.

Additional changes were made in 2025, when the One Big Beautiful Bill Act increased the amounts for standard deductions, added new deductions, increased the child tax credit, and more.

That said, it’s important to highlight that contemporary Form W-4 consists of five distinct steps through which employees:

1. Identify their filing status

2. Address multiple jobs or spouse works

3. Claim dependents or credits

4. Allow for other adjustments

5. Sign under penalties of perjury

Steps 2–4 are optional and should only be addressed if they apply to the employee.

Also, the IRS provides a tax withholding estimator to help employees determine the most accurate withholding predictions in case they are:

• Filling out and submitting Form W-4 after the beginning of the year.
• Expect a change in marital status, number of jobs, credits, and other income, or number of dependents sometime during the year.
• Only expect to work parts of the year.

The IRS suggests employees use the estimator again at the start of the next year to check and verify whether the information needs to be updated.

How Payroll Withholding Works Today

Today, payroll withholding works on a more streamlined and computational approach. The employee is guided through the five-step process, during which they calculate precise figures required to make highly accurate withholding predictions.

Let’s see what each step implies:

1. Enter Personal Information. This is straightforward and similar to what it was on the old Form W-4.

2. Multiple Jobs or Spouse Works. It is only filled out if an employee works multiple jobs, or if their status is married filing jointly, and their spouse works, as well.

3. Claim Dependents and Other Credits. In this step, employees need to calculate the exact figure in dollars for qualifying children under 17 or other dependents. In the modern Form W-4, the calculations are done by multiplying the number of dependents by the amounts provided by the IRS. In 2026, filers with a total income of $200,000 or less ($400,000 for married filing jointly) are to multiply the number of qualifying children under 17 by $2,200, and the number of other dependents by $500.

4. Other Adjustments.This requires similar calculations regarding other income (not from jobs), deductions employees may claim, which will reduce their withholding, and extra withholding, if they want to have additional federal income tax withheld each pay period.

5. Sign Here. It requires an employee’s signature, or the form isn’t valid.

If an employee completes Step 2 and Step 4, they’ll also have to fill out pages 3 and 4 of the Form W-4, which are:

• Step 2(b)—Multiple Jobs Worksheet
• Step 4(b)—Deductions Worksheet

Tips for Accurate Withholding in 2026

Here are some tips that can help ensure maximum accuracy when using Form W-4 and determining the correct tax withholding for employees.

#1. Use the IRS Tax Withholding Estimator

The IRS tax withholding estimator isn’t mandatory to use, but it’s one of the best and most reliable tools to help ensure accuracy when filling out Form W-4. It’s especially recommended to workers who expect inconsistent employment or significant changes throughout the year, or if they aren’t filing out Form W-4 at the start of the year.

For best results, you should also have your most recent pay stub from this year ready, as information in it can further improve the tool’s accuracy. The estimator accounts for your income, dependents, credits, and deductions to give you personalized data needed to complete steps 2–4 of your Form W-4.

#2. Update W‑4 After Major Life Changes

Major life changes (e.g., getting married or having a child) can alter your tax liability and make your Form W-4 outdated. That’s why it’s essential to update the form whenever an event like that happens. Otherwise, you may end up with an unexpected tax bill at the end of the year, or you can have more withheld from your paycheck than needed.

For instance, if you get married, your filing status can change from “Single” to “Married Filing Jointly,” which can reduce the amount of tax withheld from your paycheck by increasing your standard deduction.

#3. Ensure Correct Withholding for Multiple Jobs or Extra Income

In today’s gig economy, where 27% of Americans have a side hustle, it’s essential to account for them correctly when calculating withholding.

If you (filing Single) or in combination with your partner (Married Filing Jointly) have two jobs with similar pay (lower paying job is more than half of the higher paying one), you should check item (c) in Step 2.

Otherwise, you should accurately fill out the Step 2(b) worksheet to account for two or more jobs and avoid significantly incorrect withholding estimates.

#4. Avoid Over- or Under-Withholding

The primary purpose of accurately filling out your Form W-4 is to avoid over- or under-withholding and keep your tax refund (or tax bill) as close to zero as possible.

While a large refund at the end of the year might sound appealing, tax withholding affects your paycheck. This means that you’ve been paying too much tax throughout the year, and your take-home pay could have been higher.

On the other hand, trying to increase your take-home pay with under-withholding can result in a considerable tax bill and even underpayment penalties.

How Paystub.org Can Help You

Paystub.org can help you create accurate and compliant tax and payroll documentation. We developed professional and intuitive software that follows the latest IRS withholding rules and calculations.

You can use it to generate the following documents:

• Pay stubs
• Form W-2

Our generators allow you to design compliant and professional records necessary for modern payroll management. Whether you’re a small business needing documentation for its employees or an individual looking to improve their record-keeping efforts, Paystub.org offers reliable and easy-to-use software.

With it, you can effortlessly track income, deductions, and withholdings while being confident that your records align with the IRS requirements.

Final Thoughts

While regular withholding allowances are officially a thing of the past, the term is still being used. By understanding what allowances were and how they changed, you’ll be better at filling out your Form W-4, ensuring that a more accurate amount is withheld from your paycheck. This prevents over- or under-payments, saving you from the headache when filing your tax return.

Don’t forget to periodically review your form (especially after big life changes), as you may need to adjust your withholding for dependents, other jobs, changes in marriage status, etc. This will help you keep most of the money you earn while avoiding getting into trouble with the IRS.

Regular Withholding Allowances FAQs

#1. Are regular withholding allowances still used?

No, regular withholding allowances aren’t used anymore. They were made obsolete by the Tax Cuts and Jobs Act, which reduced personal exemptions to zero. As a result, they were removed from Form W-4 in 2020, overhauling the document to be simpler to fill out while providing more accurate data.

#2. How do I adjust my federal tax withholding now?

Adjusting federal tax withholding now is done using the updated Form W-4. The form guides you through a five-step process where you select your filing status, claim dependents, report other income, choose to have an additional amount withheld from your paycheck, etc.

#3. How many allowances should I choose?

You cannot choose allowances anymore. Instead, a modern Form W-4 requires you to provide specific information about dependents, other income, deductions, and extra withholding. You will give these amounts in exact dollars, allowing payroll systems to calculate your withholding more accurately.

#4. What are the risks of claiming many allowances?

The risks of claiming many allowances used to be that you could have encountered under-withholding at the end of the year. This would result in an unexpected tax bill you’d have to pay. However, today’s Form W-4 doesn’t have allowances, reducing the risk of under-withholding (or over-withholding) happening.

#5. What happens if I don’t update my W‑4?

If you don’t update your Form W-4 after a significant life event that would require it, you risk your withholding becoming inaccurate. This can lead to over-withholding or under-withholding, which would result in a much larger tax refund or a tax bill than expected at the end of the year.