TL;DR
- ✅ $2,000 per qualifying child under 17
- ✅ $500 per other dependent (college kids, elderly parents, etc.)
- ✅ Enter the total — it reduces annual withholding dollar-for-dollar
- ✅ Only one spouse should claim — not both
- ✅ Credit phases out above $200K (single) / $400K (married)
What Step 3 actually does
When you enter a dollar amount in Step 3, your employer reduces your annual withholding by that exact amount. If you enter $2,000, your employer withholds $2,000 less per year — spread across your pay periods. On a biweekly schedule, that's roughly $77 more per paycheck.
It works this way because the child tax credit and dependent credit directly offset your tax liability. Step 3 simply pre-applies that offset to your withholding rather than making you wait until you file.
Who qualifies — and for how much
Qualifying child under 17 — $2,000 each
Child Tax Credit- ·Under age 17 at the end of the tax year
- ·Your child, stepchild, foster child, sibling, or descendant of any of these
- ·Lived with you for more than half the year
- ·Did not provide more than half of their own financial support
- ·Has a valid Social Security number
Other dependents — $500 each
Credit for Other Dependents- ·Qualifying child age 17 or older (college students, for example)
- ·Qualifying relative: elderly parent, sibling, or other relative you support
- ·Anyone who doesn't qualify for the full $2,000 child credit
How to calculate your Step 3 amount
Count your qualifying children under 17: multiply by $2,000
Count other dependents: multiply by $500
Add both amounts together
Enter the total in Step 3
📊 Example: 2 kids under 17, 1 college student
2 qualifying children × $2,000 = $4,000
1 other dependent × $500 = $500
Step 3 total: $4,500
Effect: your annual withholding decreases by $4,500 — about $173 more per biweekly paycheck.
The two-spouse rule: only one W-4 gets Step 3
If you and your spouse both work, only oneof you should enter dependents in Step 3. It doesn't matter which one — but it should only happen on one W-4.
If both spouses enter the same dependents, the combined withholding reduction is $4,000 instead of $2,000 (for one qualifying child). You'll receive $4,000 less in withholding throughout the year, but only have a $2,000 credit to show for it at filing — leaving you $2,000 short.
⚠️ High earners: the phase-out matters
The child tax credit phases out at $200,000 (single) and $400,000 (married filing jointly). Above these thresholds, the credit is reduced by $50 for every $1,000 of income over the limit. If you're near or above these thresholds, use the IRS estimator for a more accurate Step 3 amount — entering the full $2,000 per child may result in under-withholding.
Calculate your withholding with dependents — free
Enter your dependents to see exactly how much less you should withhold.
Open the W-4 Calculator →Key terms in this article