Calculate the tax adjustment for allowances. An employee will have less federal income tax withheld for every allowance that they claim. Allowances account for the number of dependents they will claim on their taxes and other factors that will ultimately reduce the amount of federal taxes they will pay. The adjustment for allowances is calculated as the product of the number of allowances (in the employee information section), the allowance deduction amount (in the model assumptions), and the employee tax rate