The last time I filled out a W4, I followed the instructions on the worksheet and wrote in the number of exemptions as instructed. I redid it, because I was having too much withheld from my paycheck, and getting a refund. This year, I had a lesser refund, but still enough that it seems too much is being withheld.
Can I claim more exemptions on the W4 than the worksheet says I’m entitled to? Or do I have to put up with giving Uncle Sam an interest free loan every payday? Why isn’t there a way I could figure out what my effective tax rate will be, and just have them withhold at that percentage?
Well, from the IRS’ perspective, the perfect answer is perfect withholding… no refund, and no tax due in the following April.
The least desirable outcome, from the IRS perspective, is you owe taxes after computing the year’s returns, because that’s an interest-free loan to you out of the US Treasury. Since they make the rules, I suspect if a withholding situation is likely to be imperfect, it will be imperfect in their favor.
In other words, I don’t think there’s any IRS-sanctioned mechanism to decrease your withholding to the point of guaranteeing you’ll have to pay in April. Certainly, the instructions of the current W-4 don’t seem to allow any.
It’s a worksheet. It’s not carved in stone. The IRS uses ballpark numbers when it comes to withholding. YMMV. If you find after several years of tax filing, you can tailor your withholding to your needs, perhaps where you get a small refund or pay a small amount of tax. Your choice.
I claim several exemptions because I use my refund to pay for my car insurance and a few other requirements. Sure, the government gets an interest-free loan from me. I don’t care. In return I get a forced savings and an out of sight, out of mind bonus once a year.
I have done this. I basically got an 1800 dollar loan @ 0% interest, spread through 26 paychecks, by claiming more exemptions.
I was fronting myself the bonus I was going to get paid out in Q1. Q1 of the following year came; I got my bonus; I set aside enough to cover the check I’d need to write in April.
So, when I filed, I had to write a check for 1800. If I didn’t pay at filing, then I would have to come up with a payment plan, coordinated by the IRS, and they use some Prime Rate + whatever formula as the standard interest rate.
So, yes, you can claim more. I’ve done it more than once.
Just make sure you don’t have to pay so much so that you trigger a penalty, then the “loan” is no longer interest-free. The penalty level is somewhat complicated to calculate, since it is based on what you owe, how much you had withheld, and how much total taxes you paid the year before.
I just ran into this. For the last several years my wife was not working (much), and the first year after this, we got a sizable refund. I adjusted my withholding exemptions to 5 (there is just my wife and I, no other dependents). The next two years, we were close to even, or paying a small amount. In 2015, she got a full time position, about 4 months into the year. I had her claim 0, thinking that deductions would cover the additional income. Unfortunately, the Feds have now provided me with a $2800 loan… Oddly, I’m getting $17 back from my State (OR) (mostly due to the kicker rebate).
As has been stated, the worksheet is nothing but a recommendation. You can legally put anything you want on the form, provided that you’re not using to evade paying tax altogether.
I often recommend people look at box 6, which lets you specify a fixed withholding per pay period. It may be the easiest strategy to fine tune your withholding.
But the IRS can, and sometimes will, change your withholding number. And at the request of others, despite what you enter on the form. Unless you can prove to the IRS that it’s accurate (you really do have that many kids).
I know this from working for some years in Child Support Collections & Enforcement.
I worked on one of the first projects where we filed claims with the IRS to seize the income tax refunds of deadbeat parents to apply to their unpaid child support. We collected a whole lot of money for those kids, and made a whole lot of deadbeat parents really angry. Tough!
Many of them thought they would be smart and prevent that seizure the next year by having no refund, so they jacked up the number of exemptions on their W-4, claiming numbers like 25, 50, or even 99 dependents.
We promptly filed a document with the IRS, stating that this was an incorrect number of deductions; that the correct number of dependents for person ______ was __ (which we figured from our records of his/her children from various spouses, and who were still under legal age).
Based on this, the IRS sent them (and their employer) a letter saying that due to conflicting information, they were resetting the W-4 deduction number to that used the previous year, and explaining the evidence they could send to the IRS to prove that their claimed number of exemptions was correct. Which they mostly couldn’t do, since it was a made-up number.
Of course, this was criminal deadbeats trying to evade supporting their children.
For normal people, the IRS doesn’t care if your number of claimed deductions is too high, too low, or just right – it all works out when tax filing time comes.
Oddly, I’m getting $17 back from my State (OR) (mostly due to the kicker rebate).