I get paid commission-only at my job, although I am not an independent contractor. My boss tells me to claim 9 dependents on my W-2’s, and then when it comes around to filing in April, I should claim 0 dependents. He says this will get me the least tax liability.
First of all, is this true? And if it is, is it legal?
Any help would be most appreciated.
Your employer is an idiot. You pay tax on your income, and that has nothing to do with your withholding. If you claim 9 dependents on your W-4 (not W-2), you will have minimum tax withheld. If you then claim no dependents on your 1040, you will be taxed on the largest possible income, and thus pay the maximum possible tax. If too little was withheld, you will pay a penalty to IRS.
If you do not “pay (taxes) as you go” you will have to pay interest and a penalty, if your shortfall is high enough, on the taxes you owe. You don’t start getting taxed until your income gets up over the standard deduction (assuming you are not itemizing–this usually involves big house mortgage interest payments, property taxes, etc.)PLUS exemptions related to your filing status and dependents.
If you are self-employed, you will have to pay Social Security tax and Medicare tax, to the tune of 15.3% of your income, as well.
Your employer must have been laboring under the assumption that you have income from somewhere else (or from spouse), where there is some withholding, which would cover your earnings up to the point I mentioned above.
Your boss seems to be misinterpreting the withholding rules.
You can claim however many dependents you want on your W-4 - whether it’s true or not - and you will have taxes withheld from each paycheck according to how many dependents you claimed. The more dependents you claim, the less taxes will be withheld. However, when you file your return, you have to report the REAL number of dependents you have. If you claimed 9 dependents on your W-4 but really have none, you will end up writing a check to the govt. because too little tax was withheld all year long. Some people like to claim additional dependents because they don’t want to give the govt. an interest-free loan for the year and they don’t mind not getting a refund. But you’re going to end up paying for the true number of dependents you have - either during the year in each check, or on April 15 when you owe additional taxes to the IRS.
Hmmm. I’m not too sharp today–I guess you wouldn’t be self-employed if you are filling out a W-4; and missbunny capably explained how withholding and your W-4 works. The info I offered on the “pay as you go (earn)” principle still holds.