I work at a very small Cafe. I am the only person on management and one of the very few workers whose native language is English. We recently got a new owner and have to redo the W-4s for everyone. Unfortunately, the owner just gave me the ‘Personal Allowance Worksheet’ and the actual W-4 forms. It has a lot of terms on it that I am not sure what exactly they mean. I was able to find ‘head of household’ online, but I don’t know exactly what constitutes a dependent. Some of them have children in Mexico that they send money back to and I am not sure if they can count that.
If anyone could direct me to a website that contains all of that information I would greatly appreciate it. Or, if someone who knows these things would not mind asnwering the questions I have, I’d greatly appreciate that too.
The IRS also [started a service this year where volunteers will do your taxes for you, if you are a resident or nonresident alien who doesn’t qualify for a Social Security number, but has an ITIN (Individual Taxpayer Identification Number) instead.
I don’t want to mis advise you, so to answer your question about dependents, download [url=http://www.irs.gov/pub/irs-pdf/p501.pdf]IRS Publication 501](http://www.irs.gov/individuals/article/0,,id=96287,00.html) (which you’ll want anyway, to understand the basics of filing taxes), and read the section Headed “Exemptions for Dependents” that starts on page 9. There’s handy chart on page 10 to make it easier. On page 11 you will read that dependents must be a citizen or resident of the US, or a resident of Mexico or Canada for some part of the calendar year for which you are claiming the dependent. There’s a lot more information there, but this makes it seem quite possible that some of the children in Mexico may be claimed as dependents!
I’m not a tax advisor (in fact, doctors are notoriously bad at doing their taxes), but I’ll be happy to point to an official source for any other questions you may have.
Although the worksheet looks official, it is not necessary to fill it out in order to determine the number of dependents to claim. It’s simply a worksheet that an employee can use to “accurately” find the correct number of dependents to claim that would help them obtain zero tax liability when they do their taxes at year end. Note that they can check Single, Married, or Married but filing at higher Single rate. They then can write in the number of dependents…actually, they can write ANY number of dependents, but usually a red flag comes up at 9 or more. They can also have additional tax taken out, or even claim exempt. It should not be subject to your scrutiny. It’s between them and the Fed/State governments.
I guess what I’m trying to say is, it doesn’t matter what they claim as dependents, the number claimed is THEIR responsibility, not yours to worry about. I do let them know if they claim over 8 dependents, they may have some tax issues to deal with down the road (especially if they should only be claiming 1 or 2). It comes down to employees that want the money upfront and owe later, the ones who pay more upfront and get a refund later or the ones that just want to break even. Each employee has their methods…
Note: Since the new owner is starting a new payroll administration (since a new request for W-4s), it sounds like the employees will be getting multiple W-2s at year end…tell your employees to be careful when filling out the new forms, because since half a year has come and gone, the new deductions will only be based on the forecast of 6 months of earnings (hence, less tax taken out regardless or # dependents claimed) although you employees have 12 months of earnings and will report the total 12 months. They may want to reconsider their tax deductions by entering a nominal amount to “additional tax” to get the correct deduction each check. If they come to you and say, “They didn’t take out any fed or state tax on this check.”, then this is reason why. Have them refill another W-4 with Single or Married, filing at higher single rate, and then, if needed, any additional amount.
I have about 60 employees and it seems to be an issue with someone every month. If they have a spouse that works (and have higher earnings than they do), then I advise them to reconsider by lowering their # of dependents, preferably to 0, to avoid owing at year end. But then again, I realize it’s their choice.