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According to the IRS's online calculator, I should write "EXEMPT". According to the W4 worksheet, I should write in 11. I want to pay the least taxes without owing at the end of the year. Here is my situation.

For the first half of the year (Jan-July), I lived and worked abroad. No federal taxes. I have been abroad for 7 years. Now that I am back in the states, I will be paying taxes from now until the end of the year on my new income. I am the only one who works. I am married, filing jointly, and have 2 children who will be taking advantage of the dependent care credit.

So, what is the correct number of allowances, or am I truly exempt?

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    If you are a US citizen, then all the income that you earned abroad is taxable US income to you and should have been declared on your US Federal tax return (Form 1040) each year. That no Federal taxes were withheld does not free you from the obligation of paying the tax due, perhaps at the time you filed your tax return. If you have not been filing tax returns all these years, or have not been declaring income earned abroad on it, you may have more problems than what to write on your W4 form, and both EXEMPT and 11 are the wrong answers for 2014; your income from Jan-Jul is taxable. – Dilip Sarwate Aug 12 '14 at 2:50
  • From the IRS website: "If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($91,500 for 2010, $92,900 for 2011, $95,100 for 2012, and $97,600 for 2013). In addition, you can exclude or deduct certain foreign housing amounts." He may need to report and then claim an exclusion but may still end up paying no tax. – chili555 Aug 12 '14 at 14:23
  • I made less than 95k, and I filed every year, never having to pay taxes. – Acornrevolution Aug 12 '14 at 17:36
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    @chili555 Since the 2014 return will be filed with a US address, the OP needs to be sure that the full exclusion is still available to him for 2014; the exclusion may be pro-rated to account for the time spent abroad being less than a year. – Dilip Sarwate Aug 13 '14 at 11:12
  • The US has double-taxation treaties with most countries, so assuming you worked in one of the countries (well did you? which country? how much foreign tax did you pay?), you need to declare but likely not pay any (US) tax on that income, and in fact your foreign tax payments may give you a big deduction on your US return. [This is not tax advice, etc.] As to finding a bug or limitation in the IRS's online calculator or related instructions, I suggest you contact them, tell them what it is, they might even fix it, but I wouldn't hold my breath; irs.gov is limited and not very user-friendly – smci Dec 18 '17 at 21:47
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Let's break this down:

  • 1 for yourself
  • 1 if you are married, have only one job, and spouse does not work
  • 1 for your spouse (or enter 0)
  • 2 for all dependents (you said you have two kids)
  • 1 if you have at least $2,000 in child care expenses (usually day care, but if spouse isn't working then you probably don't claim this)
  • 4 to claim child tax credit (2 x 2)

Total is 10

If you don't claim $2,000 in child care expenses, then it's 9. If you don't want to enter in 1 for spouse in step 3, then it's 8. I have about same income range, spouse who does not work, and two kids. No daycare. I claim 8.

W4 calculator also said for me to claim 11.

  • And you haven't had to pay any taxes at the end of the year? – Acornrevolution Aug 12 '14 at 17:38
  • No, I have not. I get money back – Brian Aug 12 '14 at 18:23

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