Hi,

This is my first job and I don't really know what I should claim on my taxes. I'm single and do not have any kids, neither own any real estate. I claimed 1 for my first check and was really surprised to see the big amount taking out of my check... So I sent a new w-4 claiming 2 but for some reason it didn't really reduce the taxes. Why?

I have only one job and will be making around $29,000 this year. Can I claim 3? Or would I have to pay a lot at the end of the year?

This can look stupid but I come from Europe so I'm brand new with your taxes system...

Thank you for your help.

You should claim only 0 or 1 allowance. You must not claim more than right number of allowances otherwise, you may have to pay a penalty of $500.

Read instructions to W4 again. If you are a nonresident, then read instructions to form 8233 also. Go to Internal Revenue Service (http://www.irs.gov)

By completing W4, you instruct your employer how much tax they should withhold. This is not same as paying taxes as per your tax return. You will file your 2008 tax return before April 15, 2009. If withholdings are less than your actual tax, you will owe tax. If withholdings are more than the actual tax, then you will get a refund.

The instructions for the W4 suggest that you claim 2 allowances (1 on line A for yourself, plus 1 on line B for being single with just 1 job). I would suggest staying with that. If you want to do more investigation, you could calculate your taxes based on what you know about your income and the amount they are withholding, and see whether the amount being withheld is close or not. You don't want to underpay too much, or as MukatA says you could end up owing a penalty for underpayment. Nor do you want to have too much withheld because that's like giving an interest free loan to the government.

As for the difference in the amount withheld between claiming 1 or 2, each allowance is treated like a $3,500 deduction. At your salary that means each allowance reduces your withholding by 15% of $3,500,or $525 spread over the course of the year.

Being single, without any kids or real estate or any other material deductions, you will probably fill out the more simplified 1040 form using the standard deduction. Therefore, you should keep your withholding allowances low, otherwise you will wind up paying when its time to file your return.