What Is the Difference in Allowance & Dependent on a Tax Form?

by Brian Bass; Updated September 26, 2017

When filing your tax returns, you should understand whom you claim as a dependent and the eligibility of the allowances you claim on your Form W-4. A dependent results in a direct tax deduction on your filed return. An allowance, on the other hand, results in reduced withholdings from your paycheck, but does not directly affect your tax liability when you file your returns.

What's a Withholding Allowance?

The IRS allows many different deductions. An allowance claimed on your W-4 form helps to account for deductions you will ultimately make when filing your tax return. When you complete a Form W-4 for your employer, you mark the number of allowances you want to claim. The number of allowances directly affects the amount of tax the employer will withhold from your paycheck. The higher the number of allowances you claim, the less tax your employer will withhold. By claiming the right number of allowances, you should balance your tax obligations so that you do not have additional tax liability when you file your return and you do not receive any refund from the IRS.

Deductions and Exemptions

Allowances reduce the amount of tax your employer will withhold; allowances do not reduce your actual tax liability. Because every taxpayer’s situation is different, you have to carefully consider how many allowances you want to claim on your Form W-4. The IRS provides a worksheet attached to the Form W-4 to help you calculate the number of allowances you should claim. Generally, you will want to claim allowances for yourself, your spouse and qualifying dependents.

Dependent

You can only claim a person as dependent on your tax return if that person meets the IRS definition of a dependent. Generally, the IRS defines a dependent as a person living in your household who relies on you for support. Special rules exist for children and your ability to claim them as dependents. According to the IRS, the child you claim as a dependent must be a birth child, legal stepchild or a foster child that you directly take care of. In most cases, you can not claim a dependent child older than 19 years of age at the end of the tax year unless that child was enrolled full time in school. In that case, the IRS allows you to claim the child as a dependent until the age of 24.

Criteria

A dependent must meet the IRS criteria for a dependent by passing key tests. These tests examine the relationship, residency, age and support you provide for the claimed dependent. In most cases, the dependent has to live with you at least half of the year, and you must directly provide the dependent with more than half of his support. Talk to a tax accountant or attorney to make sure someone you care for qualifies as a dependent before you claim him as a dependent on your tax return.

About the Author

Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.