Increasing Allowances on W-4 to decrease withholding


K

klwilbur

I will be filing married-jointly. I would like to decrease
my withholding. In order to determine how many allowances to
claim on my W-4, I checked the W-4 form Deductions and
Adjustments Worksheet, the IRS site withholding calculator
and Microsoft Money.

All gave me different answers. The W-4 form worksheet said
that I was underpaying this year by about $1,500 and I
needed to withhold more. The IRS site said that I was
overpaying by about $15,000 and I should claim 10+
allowances. The Microsoft Money program estimated that I
was overpaying by about $2,500, but it did not have
information on how to convert that to allowances.

By comparing with my tax information last year, the
Microsoft Money figure seems to be the most accurate.

However, I do not know how to conver that figure to
allowances I need to claim.

Essentially, I need to claim enough allowances that end up
being $250.00 a month less taken out each month (that would
equal $2000 for the year). I am not going to alter my
wife's withholding.

Any ideas how $250 monthly converts to allowances?

Thanks,

Kelly
 
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F

Frank S. Duke, Jr.

klwilbur said:
I will be filing married-jointly. I would like to decrease
my withholding.
By comparing with my tax information last year, the
Microsoft Money figure seems to be the most accurate.
Assuming last year is a good indicator of this year, that is
your best overall number.
However, I do not know how to conver that figure to
allowances I need to claim.

Essentially, I need to claim enough allowances that end up
being $250.00 a month less taken out each month (that would
equal $2000 for the year). I am not going to alter my
wife's withholding.
Look at your taxable income and compare it to the tax
brackets, not the table but the ones that the percentages
and minimum amounts. Each exemption is worth $3100 in 2004
so if you are in the 25% bracket, it will reduce your
withholding by $775, 15% bracket by $465, etc. Now, you
need to account for the fact that 1/3 of the year is already
gone.

Another way to do it is to look at your tax withheld year to
date, calculate the amount of remaining withholding and
determine the shortfall based on last year's tax. Then add
a few exemptions and see what happens. Check again next
month and see if it looks right. If not, adjust again.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA
 
B

Barry Margolin

klwilbur said:
Essentially, I need to claim enough allowances that end up
being $250.00 a month less taken out each month (that would
equal $2000 for the year). I am not going to alter my
wife's withholding.

Any ideas how $250 monthly converts to allowances?
What I've done in the past is claim 99 allowances, which
results in no withholding, and then fill in the "Additional
Amount Withheld" field with the actual amount that should be
withheld.

There's been some debate in this newsgroup over whether this
is strictly legal -- a literal reading of the form indicates
that you're claiming, under penalty of perjury, that the
allowances figure is correct. But in practice, the IRS
doesn't seem to care as long as you're not not
underwithheld.
 
V

Victor Roberts

klwilbur said:
I will be filing married-jointly. I would like to decrease
my withholding. In order to determine how many allowances to
claim on my W-4, I checked the W-4 form Deductions and
Adjustments Worksheet, the IRS site withholding calculator
and Microsoft Money.

All gave me different answers. The W-4 form worksheet said
that I was underpaying this year by about $1,500 and I
needed to withhold more. The IRS site said that I was
overpaying by about $15,000 and I should claim 10+
allowances. The Microsoft Money program estimated that I
was overpaying by about $2,500, but it did not have
information on how to convert that to allowances.

By comparing with my tax information last year, the
Microsoft Money figure seems to be the most accurate.

However, I do not know how to conver that figure to
allowances I need to claim.

Essentially, I need to claim enough allowances that end up
being $250.00 a month less taken out each month (that would
equal $2000 for the year). I am not going to alter my
wife's withholding.

Any ideas how $250 monthly converts to allowances?
You don't have to figure the allowance equivalents. Line 6
of the W-4 allows you to specify exactly the additional
amount you want withheld from each paycheck.
 
H

Herb Smith

You don't have to figure the allowance equivalents. Line 6
of the W-4 allows you to specify exactly the additional
amount you want withheld from each paycheck.
You missed the point, Vic, he wants to have LESS withheld,
not more. He needs to INCREASE the number of withholding
allowances, which will result in LESS being withheld.
 
V

Victor Roberts

You don't have to figure the allowance equivalents. Line 6
You missed the point, Vic, he wants to have LESS withheld,
not more. He needs to INCREASE the number of withholding
allowances, which will result in LESS being withheld.
You are correct. I did miss the point until I read the again
during a later session.

Thanks for the correction.
 
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J

Joe User

Barry Margolin said:
What I've done in the past is claim 99 allowances
[....]
There's been some debate in this newsgroup over whether this
is strictly legal -- a literal reading of the form indicates
that you're claiming, under penalty of perjury, that the
allowances figure is correct. But in practice, the IRS
doesn't seem to care as long as you're not not
underwithheld.
There also seems to be some "debate" as to whether
or not the IRS "cares" -- or at least people have
had different experiences. Perhaps the IRS practices
have changed over the years.

But I can speak from painful experience that the IRS
__does__ care -- or at least it used to and at least
sometimes.

In the 1980s, toward the end of a calendar year, I
realized that I had already overwithheld. So I filed
a W-4 with 50 allowances. At the beginning of the
next year, I filed a W-4 with a justifiable number
of allowances.

You would think that everything is fine.

But 3 months into that next year, the IRS finally got
around to informing my employer's payroll department
that my earlier W-4 was not acceptable, and the IRS
prescribed a number of allowances that the payroll
was supposed to use. That number was less than the
number I dutifully determined and declared in the
updated W-4.

My payroll department felt compelled to follow the
IRS directives and use the smaller number of allowances
determined by the IRS until the IRS tells them
differently. (See IRS Pub 15.)

I sent a letter to the IRS explaining why I used
50 allowances and also justifying the new number
of allowances. I requested that the IRS inform my
payroll department that it can follow my new W-4.

The IRS declined or never did that; I don't remember
which. In any case, my payroll department followed
the IRS directives for many years, per IRS Pub 15,
until I finally convinced them that the directive
was outdated.

If you want to take your own chances, that's fine.
But I do not believe the IRS "doesn't seem to care
as long as you're not not underwithheld". See the
procedures documented in IRS Pub 15.
 

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