Have Tax Questions? Ask a Tax Expert for Answers ASAP
Your withholding is dome based on the W4 form that you filed with your employer.
If you filed as single with 2 allowances - your paycheck stub should look as
Monthly Gross Pay - $8,333.33 Federal Withholding - $1,622.69 Social Security - $516.67 Medicare - $120.83 Wisconsin - $522.49 Net Pay - $5,550.65
In general by increasing the number of allowances your federal and state income tax withholding will be less. However if at the tax time you will owe more than $1000 - the IRS may add penalties.
You may not change SS (6.2%) and Medicare(1.45%) taxes. As your wages will be increased - - SS tax are applied only to wages up to $102,000 (in 2008) - so your SS taxes in last month of 2008 will be less.
There are some standard ways to reduce tax pressure, while that depends on your specific situation:
The term "exemptions" is used for personal exemptions on the tax form 1040 line 6 - http://www.irs.gov/pub/irs-pdf/f1040.pdf - that number generally means a number of people in your family whom you are claiming personal exemptions ($3400 per person in 2007) on the line 42.
The term "allowances" is used to calculate withholding on the form W4 - http://www.irs.gov/pub/irs-pdf/fw4.pdf . While there are some correlations (each allowance is equal $3400 in deductions) allowances include itemize deduction above standard amount, other credits and deductions, hear of household status, etc.
Sometimes people confused these two terms and use them interchangeable.
In your situation - as you are single and nobody claims you as a dependent - you will have 1 exemption on the line 6 and $3400 personal exemptions on line 42.
The number of allowance you will determine by using worksheet on the form W4 - one as nobody claims you as a dependent and one as you are using single filing status - total 2.
If you want to increase withholding - for instance if you have taxable interest income and bank doesn't withhold any taxes you may cover that by withholding from your wages - you may use zero allowances (that will not affect the number of exemptions on your tax return).