Final answer:
Increasing the dependents claimed on a W-4 will decrease the amount of tax taken out of a paycheck. This can result in a larger take-home pay but might lead to owing taxes at the end of the fiscal year if not balanced properly.
Step-by-step explanation:
Increasing the number of dependents/allowances you claim on your W-4 form will decrease the amount of tax taken out of your paycheck.
When you claim more dependents on your W-4, less tax is withheld from your paycheck because you are essentially telling your employer and the government that you have more financial responsibilities, and therefore, you may need more of your earnings to meet those responsibilities.
However, while this may increase your take-home pay, it is important to be careful to not withhold taxes. If too little is taken out for taxes, you could end up owing money when you file your tax return, which is due usually by April 15th.
A proper balance should be maintained to avoid having a large tax bill at the end of the year, or alternatively, to avoid giving the government an interest-free loan which can result in a tax refund when you overpay.