W-4 | robergtaxsolutions.com

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If you normally use your income tax refund to pay for your Christmas presents, listen up. You’ve got a problem.

First, nobody is doing Christmas loans. Remember when H&R Block and Jackson Hewitt used to provide loans against your refund? Then the IRS changed the “debt indicator” which made it almost impossible for anyone to offer those loans. A few companies provided Refund Anticipation Loans, (the loans where you got your refund in 1 or 2 days instead of two weeks) but they were few and far between. Most people had to wait for two to three weeks to get their refund.

Now the IRS has announced that tax filing will be delayed—meaning that instead of accepting tax returns on January 21^st like they had previously announced—they won’t accept returns until January 28^th, and maybe not until February 4^th.

What does this have to do with Christmas? Well, if you’re putting holiday gifts on your credit card in the hopes of paying it off with your tax refund—you’re not getting your refund until mid to late February at the earliest. If you can’t afford to pay your credit cards without your tax refund—you’ve got a problem.

So what other options do you have? For some people, if you know that you’re going to have a refund on your taxes, you can change your withholding now so that you get more money in your paycheck. If you’re reading this in October or early November, you’ve got a chance to put away some extra cash for presents. If it’s already December by the time you see this—it’s probably too late.

Here’s something else you need to know. If you have your taxes done by one of those corner shop tax companies, they will gladly take your money and tell you that they’re filing your return. You might think that you’re filing on January 3 or 4^th, but you’re not. What they’re doing is “stockpiling” your return. They hit a button, it gets sent to a big corporate server, but it just sits there until the IRS says they’re accepting returns.

Why is that important to know? Because people think that they need to file early to get their refunds. But those early returns are often wrong. They’re missing information, or the software’s not fully functional yet. The IRS needs time to work out the glitches and if the IRS is having glitches, so are all the other tax companies. If you have the big green tax company send your tax return to their server and then you discover a problem with it, you can’t take your tax return back. It’s too late. And if your tax return is sent in with a mistake it could delay your refund for weeks, or even months.

There aren’t a lot of options out there for using your upcoming tax refund to pay for this year’s holiday gifts. But you know what? Christmas comes every year. Every year! Once you do receive your refund, it might be the only time in the whole year that you’ve got extra cash. Take some of your refund money and stick it in the bank so you’ve got cash to pay for your 2014 Christmas. Seriously, you never want to be dependent upon the IRS for you to have a Merry Christmas.

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

Tag: W-4

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