Posted on August 16, 2019July 19, 2019 by Jan Roberg

W4 for Dummies

W4 forms can be confusing. Get help here.

The single most popular blog post I ever wrote was about how to fill out your W4 form. Unfortunately, it’s all garbage now with the new tax rules. It’s time to take a new look at how to fill out that W4 form.

First thing to know is that the form is kind of funky. If you look at the 2019 form, well here, take a look: 2019 W4 Form

Being realistic, you might not want your employer to know all that stuff about you. Seriously, is it any of your boss’ business how much income you have outside of work? Or how much you donate to charity? The IRS is already aware that this form is a problem and they’re working on a new one. So far, it’s only a draft and it looks like this: 2020 W4 Form

What I’d like to see on these forms is an option to just withhold a straight percentage. I think that would be the easiest thing to do, but the IRS doesn’t listen to me so we’ll have to work with what we’ve got. Let’s start with the easy ones.

Students

If you are a high school or a college student, and you expect to earn less than $12,000 for the year, you’ll want to claim “exempt”. All you do is write “Exempt” on line 7 of the W4. Leave line 5 blank. Leave line 6 blank. You don’t fill out any of those other pages. Give your employer the first page and you’re done. Easy peasy!

Single People With Only One Job

Whether you’re paid a salary or by the hour, if you are single and working full time, you’re going to check the box that says single and claim one allowance on line 5. That one is also easy.

Married People Where Only One Person Works

If you’re married, and your spouse does not work, you will check the box that says you’re married, and you will claim 2 allowances on line 5. That’s it.

And that’s the end of the easy answers. Let’s look at the harder stuff.

Unmarried People with Children who Always Qualify for EIC

If you have children and in the past you’ve always qualifed for the Earned Income Tax Credit, unless you just got a big raise, you’ll probably still qualify for EIC. In that case, you don’t need a whole lot of withholding. You’re going to check the single box and claim 2 allowances for yourself, plus 4 more for every child you have under the age of 17. You might not have any federal withholding taken out of your check, but in the event that your income is high enough to require some withholding, you should be covered. It’s safer than claiming “exempt” in case you do have some federal tax liability.

Married People with Children who Always Qualify for EIC

It’s harder to qualify for EIC when you’re married because if both spouses work, the second income often kicks you over the limit. If only one spouse is working, check the married box and claim 2 allowances for you and your spouse together, plus 4 more for every child under the age of 17. Same as above.

If you both work, it’s a little trickier. Have the higher income spouse “married but withhold at the higher single rate” with one allowance, plus 4 allowances for each child under the age of 17. Have the lower income spouse claim “married, but withhold at the higher single rate” with 1 allowance. This should protect you in the event that the second income kicks you out of the EIC tax credit range.

Multiple Jobs, High Income Earners, and Working Spouses

The absolute best thing to do in this situation is to use the IRS withholding calculator. Here’s the link: IRS Withholding Calculator

Once you get to that page, you’re going to want to click on the blue box that says “Withholding Calculator”. You’re going to want to have your most recent tax return and most recent pay stubs with you when you do this. The IRS withholding calculator asks a lot of questions, (full disclosure, it’s kind of annoying) but it’s going to give you the most accurate results.

Good Grief, I Can’t Stand it! Is There Any Other Way?

Okay, this is my cheater trick. Did you owe last year? If not, you probably don’t need to change what you’re doing. If you did owe, don’t change your allowances, just add additional withholding to make up the difference in tax that you owed.

For example: let’s say that you claimed single with 2 allowances last year but you wound up owing an additional $1,000 in taxes for whatever reason. If you get paid every other week, that means you get 26 paychecks a year. You’d take $1,000 divided by 26, so you’d have an extra $38.46 taken out of each check.

Of course, if you’ve only got 14 pay periods left in the year, you might want to withhold more now and change it in January. Or you could set the rate now and just make an estimated tax payment to cover the difference. Do what works best for you.

I Still Need Help

I get it, this is confusing. Literally hundreds of people asked questions on the old blog post. I had to quit answering them. I just could’t keep up. I have my regular clients to attend to and it was overwhelming. If you still need help, contact your tax advisor. If you’re already paying someone to do your taxes, they should be able to help you with your W4, and they’re going to know so much more about you than I will.

If you don’t have a tax advisor, you can call my office and I can help you with this, but I’m going to charge you $200 to prepare your W4. I would need your most recent pay stubs and your latest tax return.

Posted on February 1, 2013May 23, 2018 by Jan Roberg

Claiming Exemptions—the W-4 for Dummies

NOTE FOR 2018: The Tax Cuts and Jobs Act that was recently passed by Congress is going to change the IRS withholding tables and how we fill out W4s. Right now, we are still waiting for the IRS to supply the new withholding tables and create the new W4s. This post is about the old W4. I will be updating this as soon as I have new information. But right now, the information below is for 2017 and earlier. I do not expect the new information to be available until mid February.

-Jan

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

Posted on April 6, 2011May 31, 2016 by Jan Roberg

How Do I Keep From Owing So Much Tax Next Year?

Photo by Woodleywonderworks

You’ve done your taxes and now you’ve got a huge balance due. You have two problems—one is figuring out how to pay now, and the other is how to not owe next year. Today we’re looking at how not to owe next year.

If you have a regular job where your employer withholds your state and federal income taxes (plus your social security and medicare) then your problem is that you just didn’t withhold enough from your paycheck. The most common problem is claiming more exemptions than you’re entitled to. If you’re single with no house, no kids, etc, you should be claiming single with one exemption. I’m amazed at how often people come to me because they don’t understand why they owe, but they’ve claimed 10 exemptions when they have no deductions whatsoever.

Let’s say you’ve got the spouse, kids and mortgage—once again, you probably still claimed too many exemptions. I find that people overdo it on the personal allowances worksheet. If you’re married and filing “jointly”, then don’t put a one in the “head of household” box. If your income doesn’t fall within the right parameters, don’t claim that extra exemption for the child tax credit. When I’m examining these forms, I often find that couples checked boxes that they should have left blank.

Most importantly with married couples, if one spouse is the main wage earner that spouse should claim the exemptions and the spouse with the lower income should claim 0 exemptions. That should put you back on track.

People with multiple jobs are in the most danger of not withholding enough. Let’s say you’ve got two part-time jobs instead of one full time job. Individually, if one of those jobs was your only income, your tax rate would be fairly low, maybe the 10 to 15% tax bracket. But combined, your jobs put you in the 25% or more tax bracket. Even if you set your withholding rate at single with 0 exemptions, you wouldn’t have withheld enough. If that’s your situation, you’ll need to have extra withheld from our wages.

The best way to figure out how much to withhold is to use the IRS withholding calculator. Grab your latest pay stubs and your recent tax return and go to this website: http://www.irs.gov/individuals/page/0,,id=14806,00.html It’s the best way to figure out how much you really need to withhold to have a zero balance due. If you want a refund next year, you’ll need to claim less exemptions (or withhold more from your paycheck) than this site recommends.

My next post will be about how to figure an estimated tax payment.