How does Exemption 1 and Exemption 2 work?

The Employees > Payroll screen reflects the employee-specific withholding exemptions as elected by the employee. Some states have provisions for the employee to enter two sets of exemptions. For example, California’s DE-4 Regular Withholding Allowances (Exemption 1) and Estimated Deduction Allowances (Exemption 2). You can refer to the Federal Form W-4 and the state withholding exemption forms for more specific information about Exemptions 1 and 2. Exemptions are also known as Allowances in some cases.

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