Thursday, December 4, 2014

Tax Exemptions - W4 Withholding Allowances

We came across the following discussion over at Bogleheads

Tax Exemptions - W4 Withholding Allowances

Postby hackermb » Wed Dec 03, 2014 4:35 pm
I get paid on W2 from an Employer
Wife owns business and pays estimated taxes quarterly.
We will have new child due in March 2015.

How many exemptions should I claim for my W2 state and federal withholding?

1) Just claim myself - 1
2) Claim myself and the new child - 2
3) Claim all three - 3

The wife should be clearing more than me from the business.

Tax preparer said wife should claim herself for the estimated taxes and I should claim myself. However, does it really matter at the end of the year? Does one method save more taxes than another or does it just reduce the amount we would loan the gov't?

Thanks in advance.
Posts: 95
Joined: Mon Oct 07, 2013 3:22 am

Re: Tax Exemptions - W4 Withholding Allowances

Postby Carl262 » Wed Dec 03, 2014 5:25 pm
Your W4 withholding does not affect your tax liability - it's a payment towards your tax liability.

What matters at the end of the year is the difference between your tax liability and your total withholding amount. If you've paid in too much, you'll get some back. If you haven't withheld enough, you'll have to send the IRS more (and possibly pay a penalty if you way underpaid - see here
Posts: 25
Joined: Mon Nov 10, 2014 6:26 pm

Re: Tax Exemptions - W4 Withholding Allowances

Postby kaneohe » Wed Dec 03, 2014 6:37 pm

I have not personally used it but it looks interesting. You might also want to check by using the values it gives and seeing how much is withheld on both your and spouse income and comparing that with the tax on your tax return.
Posts: 2653
Joined: Mon Sep 22, 2008 12:38 pm

Re: Tax Exemptions - W4 Withholding Allowances

Postby notmyhand » Wed Dec 03, 2014 7:07 pm
Ignore this. Not sure why I was thinking about it this way ->
I'm not sure even three would be withholding enough as it would assume regular federal, state, and employee FICA taxes but it wouldn't withhold employer FICA portion which she would be responsible. You might be able to do four or more and get it covered but it might just be easier to do estimated taxes. I am not an accountant though.
Last edited by notmyhand on Wed Dec 03, 2014 7:38 pm, edited 1 time in total.
Posts: 66
Joined: Mon Jul 15, 2013 7:43 pm

Re: Tax Exemptions - W4 Withholding Allowances

Postby icefr » Wed Dec 03, 2014 7:12 pm
The IRS Withholding Calculator should be able to help you answer this question: ... Calculator
Posts: 171
Joined: Sun Apr 17, 2011 10:50 am

Re: Tax Exemptions - W4 Withholding Allowances

Postby BL » Wed Dec 03, 2014 7:28 pm
The more exemptions you claim, the less is withheld. You may have under-withheld if you each claim one. You have to do the calculations. It depends on how much you make, how much you put into retirement accounts, child care; you should also get ~$1k child care credit. Also check during the year and adjust if necessary. Here is some reading material that might help a bit:
User avatar
Posts: 2577
Joined: Sun Mar 01, 2009 2:28 pm

Re: Tax Exemptions - W4 Withholding Allowances

Postby Skiffy » Wed Dec 03, 2014 10:29 pm
If you go to the website and pull up Publication 15. Then look at your current paycheck figure out by changing your withholding how much more or less over the year will be taken out.

You may want to wait until filing your taxes for this year then seeing if you will get a refund if you can claim another person, then change your W-4 for the rest of 2015.
Posts: 176
Joined: Tue Oct 30, 2007 2:13 pm

Re: Tax Exemptions - W4 Withholding Allowances

Postby darrellr » Thu Dec 04, 2014 4:03 am
+1 to the others that said that the w4 just determines what is withheld and has no impact on final tax liability (other than possible small penalties for underpayment).

The best indicator is last years taxes. Did you withold enough or too much last year? If last year was spot on then consider +1 deduction for the new child/deduction in your family :-)

If your situation has changed enough that last years data is irrelevant, and with your wife having significant income and making estimated payments, in your case I would claim 0 deductions and withhold at the higher single rate for federal.
Adjust in year 2.

For state I might claim a deduction. I hate getting state refunds because one year it interacted with AMT in a way that turbo tax can't handle. I like to slightly overpay for Feds and slightly underpay for state.


Post a Comment