A withholding allowance is an exemption that reduces how much income an employer deducts from an employee’s paycheck for taxes and transmits to the Internal Revenue Service (IRS) on their behalf.

This exemption from withholding is tied to the personal exemption, a federal tax break that was available to all taxpayers, regardless of their expenses, through 2017.

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated personal exemptions for the period from 2018 to 2025. As a result, the withholding allowance has no current practical relevance. But that could change after 2025, if the TCJA changes are not extended.