Ever wonder why you are taxed differently than, say, that co-worker with two kids? You may make the same amount of money per hour but the take-home pay is vastly different. This is due to the way that you filled out your W-4 form. Learn how claiming a certain number of deductions can mean more of a benefit to you.

The W-4 form is where an employee elects how much of a withholding allowance they are giving the company the right to deduct. In plain English, this just means that the more deductions you claim, the more money you see in your paycheck. On your form, you can specify how many deductions you want to claim for state and federal tax purposes.

What are deductions and how many can I claim? Deductions reflect the number of exemptions you qualify to take. For instance, everyone gets to claim one exemption for themselves. A minor child who is working can claim him or her self as a deduction even if they are claimed on their parent's tax return. You can claim yourself for state and again for federal taxes.

If you have children, each child can be claimed individually. With two kids, that's two more exemptions. Other factors contribute to your withholding allowance: business losses, tax credits, alimony, child support, and retirement contributions.

The thing about deductions on the W-4 is to be wise about what you claim. You can claim as many deductions as you qualify to take if you know how to work with your money. Some folks would rather have all of their money upfront instead of waiting for January 15th of the following year. When your income is low, this can be a good idea.

W-4 calculators determine how much money you should be paying in taxes for the year based on your earnings. A little number crunching can tell you how many deductions to claim so that you won't owe the government a dime for taxes, and you'll get more money in your check than you did before. If you are off by one deduction you could owe $100 or be refunded $100.

When you get a refund from the federal government, in effect, you have let them borrow your money for an entire year. They have paid no interest into it so you get back exactly what you gave them. Taxpayers can earn some interest on that money through the year by claiming more deductions and putting the excess earnings away in a savings account for a rainy day.

If you elect to claim a certain number of deductions and find out that it is too much, you can change it. Employers have to let their employees change their status as often as they want. There are people that claim the upper limit of their deductions throughout the year to get more cash and then change the W-4 towards the end of the year to take out more, so very little if anything will be owed at tax time.

How many deductions should you take? It's up to you and your financial situation. More money in your pocket during the year benefits the family and you if it is managed right. If you consider that money "persona non grata", saving it will give you a financial cushion at tax time if you owe the government. Also, your tax credits could net you a refund even after you have gained extra cash through your W-4.

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