Claiming Exemptions—the W-4 for Dummies

w4 for dummies

 


I’ve been getting a lot of questions about how many exemptions to claim on the W-4 (Employee’s Withholding Allowance Certificate) form that you give to your employer.  People look at the whole 2 page form and get intimidated.  For most people—you should just ignore the rest and concentrate on the little part at the bottom of page one.  That’s the part in this screen shot up above.   It will make your life a whole lot easier.

 

First, some questions:

 

I claimed the wrong number of exemptions on my W-4 and now its tax time and I’m going to claim a different number of exemptions.  Will I get in trouble for this?


No you won’t.  Your employer doesn’t report you to the IRS for not claiming the right amount of allowances.  The worst that will happen is that you owe a lot at tax time or get a big refund.  (Actually I don’t think of getting a big refund as being a bad thing.  Probably shouldn’t call it a “worst case scenario.”)  Neither of those things are crimes.  It’s possible that the IRS could inform your employer to increase your withholding if the withholding on your W2 is not enough to cover your tax liability.  I have never seen that happen to anyone—but the IRS is allowed to do that if they think it’s necessary.

 

I don’t want any tax taken out of my paycheck.  Can I just claim EXEMPT?

 

No you can’t.  Exempt is only for people who will have no tax liability at all.  You might have gotten a refund last year, but it doesn’t mean you have no tax liability.  Generally, someone with no tax liability makes less than $5,950 for the entire year.    For most people, claiming EXEMPT is a really bad idea.

 

Okay, so what should I claim? Good question.  Here’s my suggestion list.  See what category fits your best.

 

You are a student, either in high school or in college.  You’re not married and you don’t have kids.  Your parents are allowed to claim you on their tax return (you’re under 24 years old.)  SINGLE, ZERO ALLOWANCES


You’ve got a job, only one job, you’re living on your own, and you’re single.  SINGLE, ONE ALLOWANCE


Now if you have a child, add another allowance for each child.  For example, let’s say you’re single with 2 kids, you’d claim single 3 allowances; one allowance for you and one for each of the children.

 

Single like above but you’re working two different jobs, SINGLE, ZERO ALLOWANCES – because the two jobs kick you into a higher tax bracket than the withholding would show.

 

You’re married and only one person works:  MARRIED, TWO ALLOWANCES


You’re married and you both work—you’ll each have your own W-4 and they will be different

 

Spouse #1 with higher paying job—claim MARRIED and all the allowances for the family

 

Spouse #2 with the lower paying job—claim MARRIED BUT WITHHOLD AT HIGHER SINGLE RATE, ZERO ALLOWANCES


Now this is a pretty simplified guide, but it’s much easier to understand than what is on the form.  I also find that people are less likely to get into tax trouble with my rules than when you follow the allowances worksheet.

 

If you want a really good, accurate calculator to figure your proper withholding, the IRS has one on their website.  The problem is, as I’m posting this—the calculator is down.    You can use this guide for now and you can always tweak your withholding later when it’s back up.  Here’s the link:  http://www.irs.gov/Individuals/IRS-Withholding-Calculator

562 thoughts on “Claiming Exemptions—the W-4 for Dummies

  1. Hi Jessica,
    You could probably claim 7 for your federal withholding. State is always harder because every state is different. I’d claim 4 for the state. If you get a big refund you could always change it later.

  2. Hi Marie,
    A lot of people are unpleasantly surprised when they buy a house and find out that the tax savings they get from having a mortgage aren’t as great as they thought they were going to be. I’d hold off on changing your withholding until you actually own the house and will be paying the mortgage for a full year. Even then, I think 10 exemptions will be too much for you to claim.

  3. Hello Jan,

    I am single, head of household with 3 children and a fiancee that is a stay at home mom. I am getting 13 exemptions for federal and 8 state on W-4. Is this accurate? State of Maine.Thanks!

  4. Hello Jan, I will be losing my job in several weeks. I have 9.5 weeks of accrued vacation and will get a final paycheck of course. In your opinion, should I go in and change my allowances to 6 or 7 o my W4 to get as much out of that money as possible? If I can find a new job I would of course go back to 2 allowances.

    James

  5. Married, spouse doesn’t work, two children, renting.
    The helpful IRS site made an adjustment, but I think it’s to compensate for overpaying so far this year.
    What do you think, Jan?
    Thanks in advance!

  6. Hi Emanuel,
    I’ve got to give you the classic accountant answer: it depends.
    Here’s what we’ve got to look at- first – the children. Are they your children? This is really important because if you are not the biological father, even though they live with you, you cannot claim them for EIC. Now, you might be able to claim them as dependents – if they lived with you for a full year, but not for EIC.
    Also, if they are not your biological children (or adopted, or court appointed foster children) they won’t qualify you for head of household filing status either. So, if your name is not on the kid’s birth certificate – you could have a real problem. If there is another parent with any kind of legal claim – you could be filing your return as single with no dependents and have a huge tax bill.
    But let’s go through it slowly, and see.
    First, let’s look at your fiance. She’s not married to you but she’s living with you. If she lives with you for the entire year – January – December, and makes less than $4,000 a year, and you’re supporting her, then you may claim her as a dependent. You can’t claim head of household using her, you would still be considered single, but you could claim her as a dependent. If she didn’t move in until something in 2016 – you can’t claim her because she wasn’t with you the entire year.
    Now for the kids – if they are not your children, same rules: They have to live with you for the entire 12 months. And, they wouldn’t qualify you to claim head of household – only single with dependents. The only way you could claim EIC on these kids would be to marry their mother. Then you would be the step father and that would give you legal status to claim them for EIC.
    But – what if you’re their legal father? That’s a whole different ballgame. And, only one of those children need to be yours to qualify for head of household filing status. (HH is a better tax rate so you want it if you can get it.)
    Assuming that all three children are yours, and you can claim them for everything, plus your fiance is counted as a dependent – how many exemptions can you claim? Well, you, plus three kids, plus fiance make 5 – right? Plus, if the kids are under age 17, then you could claim 3 more exemptions for the child tax credit. If you make less than $70,000 then you could claim 5 for the child tax credit. So 5 plus 5 is 10. Plus, you could claim one more exemption for the head of household designation so that makes 11. So in this case I’d go 11 federal and 6 for Maine. (Maine’s W4 basically takes your federal and subtracts how many exemptions you’re claiming for the child tax credit)
    I notice that you had two more exemptions than I show. I’m pretty sure it’s about line B – claim another exememption if you are single and only have one job. I hate that line. So many times I do returns for single people who owe because they claimed 2 exemptions because of that line. So I leave it out. And there’s also a line where you can claim an exemption for the Child care credit. If your fiance is a stay at home mom- I’m thinking you don’t get to claim the child care credit so that’s why I’ve got you down to 11 instead of 13. That said, if your income is low enough to qualify for EIC- 13 might be just fine since EIC would cover any tax shortfall. I’d still keep Maine at 6, but federal could easily go to 13 if your income is low enough to claim EIC.
    Now, what if the kids are a combination of yours and your fiance’s from a previous relationship? Then I’d reduce the exemptions by 2 for each child that isn’t yours.
    Gosh, I feel like I just wrote a book. Sorry to go on so long, but you see how there’s so many moving parts? There’s so many rules involved with kids. So here’s some help. If you want to know if you can claim a person as a dependent, the IRS has an assistant for that. Here’s the link: https://www.irs.gov/uac/who-can-i-claim-as-a-dependent?_ga=1.267845195.417861525.1432604861

    Answer the questions and it will let you know if you can claim someone as a dependent or not.

    The IRS also has another program like that to help you figure out if you can claim Head of Household or not. https://www.irs.gov/uac/what-is-my-filing-status

    These are interactive sites, they ask you questions, you answer and it spits out what you need to know. And, you don’t need to be a genius or have a degree in accounting to understand them. (Some of the IRS sites aren’t quite so easy.) But these two are okay. And, you’ll know for certain what you can and can’t claim.

  7. Hi James,
    It’s September, so basically you’ll be getting paid partway through November. So – it’s probably not a bad idea to go for a little extra cash up front to help you through the holidays and tide you over until you get a new job. Is this good tax advice? No – probably not. But there’s paying your taxes and putting food on the table. Sometimes you gotta put food on the table. You don’t know when you’ll get that next job. So, while I think tax-wise, you’re probably better off keeping your exemptions where they are – if I were your friend, I would tell you to up your allowances, take the cash, and deal with the consequence (if any) come April. Stick the money from the accrued vacation etc. in the bank. If you need it to live off of – you’ve got it. If you get another job sooner than expected – great, it’s there to pay your taxes AND you’ve got money in savings.

  8. Hi Skekesia,
    What a cool name! I’ve never heard that one before.
    I like it. I would say 1 for you, 1 for claiming head of household, 2 more for the kids, 3 more for claiming the child tax credit. That’s 6. If you’re paying for day care, maybe go up to 7.

  9. Hi Mike,
    If the IRS site suggests that you reduce your exemptions, it’s probably because you over withheld so far for the year. So go ahead and change. Or, don’t and just take the refund.
    But if you make the change, because you over-withheld, then come January, re-examine your withholding and adjust again so that you don’t get caught owing for 2017.

  10. Hi me and my husband both work we normally file joint. Income over 70k. Heis allowances are 3. What should mine be? We do want a refund. Also if we filed as single would we get more?

  11. Hi Casey,
    If your husband is claiming 3 allowances, I would think that you’d want to claim zero allowances and withhold at the higher single rate. But the best way to figure it is to go to the IRS withholding calculator and run your actual numbers.

    When you say, file as single – do you mean your tax return? Married people cannot file as single, they can only file as either married, or married filing separately – which is what I think you mean. Most of the time, you’re better off filing jointly. Many of the tax programs allow you to click on a button to compare to see if filing separately is better, but usually, you’re better off filing jointly.

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