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I just started a new job and I had to fill out the W4 form. I am confused about claiming number of allowances.

Here is my household:

  • Me
  • Wife (Homemaker)
  • Child 1
  • Child 2

I make around 110-115K a year and live in Texas.

W4 form has the following question:

Total number of allowances you are claiming (from line H above or from the applicable worksheet on page 2)

I added everything up and it came out to be 8 allowances that I can claim. The HR person told me that claiming 8 allowances might mean that you do not pay anything in tax and in the end I end up owing money to Uncle Sam.

What is the best way to come up with claiming the allowances? What things I should consider.

6

In 2013, an allowance/exemption is like saying, "Please don't tax $3,900 this year." So 8 allowances is $31K not taxed. It doesn't wipe out your tax withholding.

Circular E will show you the exact amount they'll withhold based on the allowances you claim.

Keep in mind, the withholding is run-rated. i.e. it assumes a full year of work. If you had no income for the first 6 months of the year, you will actually still have too much withheld even though the number is right for the full year, starting 2014.

  • So if I say 8 allowances then 31K is not taxed. Can this lead to me not paying enough taxes in the end and then having to owe IRS money + penalty. I just want to be safe so I put 4 allowances instead of 8. Although the worksheet calculation indicates 8 allowances is the correct number. – john doe Jul 9 '13 at 15:37
  • The child credits count for quite a bit. A full allowance each. As littleadv stated, go with what the form told you. Were you working earlier this year? That may be important. You might wish to get a copy of tax software and do a dry-run for the 2013 return to prove to yourself how close you'll come to the right numbers. – JoeTaxpayer Jul 9 '13 at 17:45
  • Yes I was working throughout the year. I am not sure what information I filled for my last job W4. So, if the worst happens and I end up owing money to IRS can this also include the penalties. I usually include the children when the time comes to pay the taxes and then I get a refund. Last year I got a refund because of 2 children. – john doe Jul 9 '13 at 21:01
  • Since allowances are whole numbers, each one will mean +/- $975 in tax withheld. I'll assume you are just hitting the 25% bracket. If you prefer a refund, just claim 6 and you're on track to get back just under $2000. (This is interesting, but we should be talking about saving, Roth vs Pretax. You should read the post here on that topic.) – JoeTaxpayer Jul 9 '13 at 23:26
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Why did she say that? If you followed the worksheet and that's the number you calculated - go with it. I'm guessing you're getting the child credit for both kids, right? If so - 8 makes sense.

Make sure you have withholding of at least the amount of tax you owed last year to avoid penalties (if this year you end up owing more, that is).

  • THanks! You are right I followed the worksheet and it came out to be 8. Yes I am getting the child credit for both kids. Currently, I have put down 4 but I can change it anytime to 8. I will do that once I get my first check. Thanks! – john doe Jul 8 '13 at 19:48

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