What is a Withholding Allowance?

A withholding allowance is an amount of money that an employer can deduct from an employee’s wages for tax purposes. This amount is determined by the employee’s filing status and the number of dependents they have. The amount of the allowance is based on the Internal Revenue Service (IRS) guidelines and is used to reduce the amount of taxes that are withheld from the employee’s paycheck.

History of Withholding Allowance

The withholding allowance was first introduced in the United States in 1943 as part of the Revenue Act of 1943. This act was passed to help fund the war effort and to help reduce the amount of taxes that were being paid by individuals. The withholding allowance was designed to help individuals reduce their taxable income by allowing them to claim a certain amount of money as a deduction from their wages.

Since its introduction, the withholding allowance has been adjusted several times to keep up with inflation and changes in the tax code. In 2018, the Tax Cuts and Jobs Act was passed, which increased the standard deduction and eliminated personal exemptions. This resulted in a decrease in the amount of withholding allowance that could be claimed.

Table of Comparisons

Summary

A withholding allowance is an amount of money that an employer can deduct from an employee’s wages for tax purposes. This amount is determined by the employee’s filing status and the number of dependents they have. The amount of the allowance is based on the Internal Revenue Service (IRS) guidelines and is used to reduce the amount of taxes that are withheld from the employee’s paycheck. For more information about withholding allowances, you can visit the IRS website or consult a tax professional.

See Also

• Tax Withholding
• Tax Exemptions
• Tax Credits
• Tax Deductions
• Tax Brackets
• Taxable Income
• Taxable Wages
• Taxable Benefits
• Taxable Interest
• Taxable Dividends

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