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I need to adjust my income tax allowances

I'm classified as single and claim 0 allowances, this is the most debilitating outcome for near term cash flow and I've read I can claim 1 or 2, my dilemma is that every time I fill out a W-4 I read the instructions verbatim and claim deductions based on what makes sense

Am I understanding that these allowance suggestions are largely inconsequential and it is just the number that is important?

Where 1 or 2 allowances may result in my owing taxes to the government? This is a tolerable outcome for me, but I do need to know about the consequences

Secondly, what is involved with modifying my allowances with my employer?

Thanks for the insight

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For modifying your allowances you'll simply just need to fill out your W-4 again and give it to your employer. You should see the results on your next paycheck.

For claiming allowances you are not legally allowed to claim any more than the restrictions allow, however given your situation--single and not claimed as a dependent on someone else's tax return--you should be able to claim two. If you are claimed as a dependent, you will only be allowed to claim one allowance. To be specific, sections "A" and "B" should be marked as "1" on your W-4 if you are single and not a dependent.

The consequences for withholding too little can be painful, but if you are only claiming 1-2 allowances this should not be an issue for you. The rule is that as long as you withhold either 1) 100% of what you owed on your federal income last year or 2) 90% of what you owe on your federal income for this year then you are not subject to penalties. Additionally, if you make less than 10k for the year then you are exempt from penalties for withholding too little.

Keep an approximate record of how much you should owe for the year, and there's no way this will be an issue (since you can be wrong by at least 10%). The rules are a little different for very high income people, but you are likely not in that situation. And always remember, if your situation changes for whatever reason you can always file a new W-4. But generally it's a good idea to not have more withheld than you need too--you can invest (or simply just save/spend) your money without having to wait until next April to get it.

  • thanks! what about if I have 1099's or other sources of income? can I still check B ? – CQM Jul 22 '14 at 0:39
  • You absolutely are still allowed to check "B". Your W-4 is not affected by capital gains/dividends. However, 1099's can make things a little trickier, and you might need to withhold additional amounts depending on how much money you're making on your investments. See money.stackexchange.com/questions/33552/… – JuiceBox Jul 22 '14 at 13:34
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I thought we had another question addressing this. Can't locate right now.

In 2014, a withholding allowance is your way of saying "don't tax $3950 of my income."

An allowance can represent a dependent, such as a child, or deductions above the standard deduction, such as mortgage interest and property tax.

Hopefully, you know your bracket, i.e. the federal tax you'd owe on the last $100 of income taxed. And you know what your refund was. Say you got back $2000. And you are in the 25% bracket. Seems to me you want $8000 not taxed. So add 2 more allowances. It's not an exact science, as you need an integer for allowances but you can also say "plus $x/pay period" and get darned close to zero.

You might also consider pulling a copy of Publication 15 otherwise known as Circular E. This will tell you the exact withholding dollars for your tax status (single) and the allowances you are claiming.

  • yeah but I don't HAVE any of those allowances, I don't have a dependent, child, mortgage interest, property tax. But everyone keeps telling me "choose two" ???? I'd like to get it exact. – CQM Jul 22 '14 at 0:08
  • If you are getting a refund of more than your rate times $3950, you are an allowance too low. Short of posting a PDF of your return, it's not easy to guess WHY, only to tell you how to get closer to even. – JTP - Apologise to Monica Jul 22 '14 at 0:56

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