# Why is the 2013 Withholding Calculator giving me such incorrect recommendations?

I am trying to figure out what I should enter in my W4 and want to use the IRS Withholding Calculator as a guide.

To that end, my information is as follows:

1. We will file MFJ, with an income of $85k/yr and$5k signup bonus, starting May 1st 2013
2. I worked as a contractor from Jan 2013 to March 31st 2013 earning a total of $15k with no taxes withheld (will make my ES payments on April 15th) 3. My wife (as well as I? (since we were both students)) can claim the Lifetime Learning credit for tuition (so$1k as an estimate for this credit should be close enough if not less)
4. We have no other credits or deductions to make besides the standard and personal deductions

When I enter this information into the IRS Withholding Calculator, it asks me to enter the number of deductions as 7 and tells me that ~$3k in taxes will be owed by me at tax time. Now this is clearly a bad suggestion as the IRS will assess me a penalty for owing more than$1k at tax time?

How do I then use the IRS Withholding Calculator so I can fill out my W4 correctly?

When I go through the calculator I get 5, not 7. It also suggest a $250 refund, not owing anything. Instead of figuring out a calculator, let's just solve your problem. You will gross$76667, correct? (85K * 2/3 year, plus $20K total) After$12,200 standard deduction and $7,800 exemption, you have a taxable$56667. A tax bill of $7608, but you say a$1K credit, so $6608 is what you need withheld. 17 checks of$3270, and you need $389 withheld from each check. With no allowances, the withholding is$424 per check, and you're on track to have a refund of $604. See Publication 15 (aka Circular E) for the math. The truth is - the calculators work best when you have a real annual income, not a mix, and not income you earned but need to pay tax on. I'd not cut any check for estimated tax on April 15th. Go with zero allowances and check the YTD numbers in September. In December, check again to claim the right number in 2014. • +1 The truth is - the calculators work best when your have a real annual income... I would also make sure you make the safe harbor numbers so that you don't get hit with penalties for underpayment – mhoran_psprep Apr 13 '13 at 14:37 • great point mhoran, some don't mind owing as long as they owe no penalty. – JTP - Apologise to Monica Apr 13 '13 at 19:59 • Your last sentence has been expanded more upon by Dilip Sarwate: this essentially implies I can skip paying my ES for Q1 2013 if I claim only 1 allowance (vs. your suggested 0 allowances which seems to me a bit too much) in my W4? – sekharan Apr 14 '13 at 2:43 • Yes. Given the mix of W2 income and contractor income, you can make up the shortfall the rest of this year. The payroll dept can change withholding on a couple week's notice. Whatever you decide, check to see you are on track in early September. 1 allowance for you will change tax withheld by about$900 over a full year. So $600 for the remaining time. – JTP - Apologise to Monica Apr 14 '13 at 3:10 • Great. Since taxes due will not be more than$1k, I will owe no penalty if I select 1 allowance on my W4? – sekharan Apr 14 '13 at 17:27