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When I started my job, I filled out a W-4 and claimed 3 allowances. While going over my pay check information, I noticed at about 1 year ago, they stopped taking out federal taxes each check.

I went in and they said the W-4 on file that I submitted "Total number of allowances you’re claiming: 3", but they said the computer says I'm at "6" and they would not explain why.

Assuming I correctly filed my taxes each year, does this have some implication of any kind, such as I paid too many taxes? Or the employer has not been paying enough of their contribution to the taxes?

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If your withholdings have gone up, then you have been paying too little tax and might be in danger on an underpayment penalty (or at least a large tax bill when you file). Your employer's share is not dependent on your allowances (their share is for medicare and social security, not income tax).

That said, 6 allowances shouldn't be enough to stop withholding taxes altogether unless you're making about $25k or less.

Luckily it's not too late to correct the situation. Find a withholding calculator online, plug in the pertinent information (which should include the amount withheld to date) and see how many allowances it recommends. I would start with 1 to be safe, see how much is withheld, and extrapolate that out to the rest of the year to see if it will be enough to match what you paid last year (which should be fairly close unless you've gotten a large raise, and will avoid a penalty). If it's significant;y higher than needed, drop it down to 2 or 3 and check again after a few paychecks.

  • To expand on this - my understanding is that the employer is not permitted to arbitrarily change the result of your W-4. At worst, if they have reason to believe that you are fraudulently claiming exemptions to which you are not entitled, they can REDUCE the number but not increase it. Something smells fishy here. Unfortunately, no matter what, you will be responsible for paying the correct tax amount so there's little recourse except, as noted in D Stanley's answer. It's in your interest to correct this quickly. – Istanari May 31 at 13:16

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