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I'm setting up my federal tax withholdings with my employer for 2021 using the new W4 form. I'm confused about line 4b. Based on the tax as accurately as I can figure it, if I select married-filing-jointly and figure in the $4000 in tax credits I know I am due on line 3, I will end up overpaying my taxes.

To make it come out just right (my goal here is to break even with the IRS - no refund, no bill to pay in April) I need to plan on having about $1000 in additional deductions annually. Not credits, but additional deductions. So, I'd like my W4 to reflect...

  • MFJ
  • Standard deduction
  • about $1000 in additional, annual deductions above and beyond the standard deduction.

Do I write in this amount, $1000, for line 4B? Would my employer then compute my taxable income as as my gross income, minus standard deduction, minus this $1000? And then they would compute the tax, subtract the $4000 tax credits and divide this final amount over the number of paychecks?

My worry is that I've figured it wrong and this $1000 appears to be my "total" deductions in place of the standard deduction, resulting in overpaying massively on my first paycheck.

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On Line 4(b) of the new Form W-4, it says,

Deductions. If you expect to claim deductions other than the standard deduction and want to reduce your withholding, use the Deductions Worksheet on page 3 and enter the result here

Looking at the Deductions Worksheet on page 3, it has you entering in your expected total Schedule A (itemized) deductions, subtracting the amount that your standard deduction would be, then adding in the amount of your above-the-line deductions (from Schedule 1, Part II), such as IRA or HSA contributions. This is the number that you enter on Line 4(b).

So if you expect to have $1000 more in itemized deductions than your standard deduction would be ($25,100 for Married Filing Jointly in 2021), or if you expect to have $1000 in above-the-line deductions in addition to the standard deduction, the instructions would have you enter $1000 on Line 4(b).

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