what is an income tax allowance
What is a 'Withholding Allowance'. Employee-claimed exemptions on the tax form employers use to determine how much of an employeeâs pay to subtract from his or her paycheck to remit to the tax authorities. The more allowances you claim, the less income tax will be withheld from your paycheck. The fewer allowances you claim, the more income tax will be withheld from each paycheck. In the United States, taxpayers use form W-4 to calculate and claim their withholding allowance. Next Up.