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robmandu's avatar

Number of exemptions/allowances for W-4 form?

Asked by robmandu (21210 points ) June 16th, 2010

I need to update my W-4 form for 2010 (yay, baby boy!).

However, section G (Child Tax Credit) looks new to me. And if I follow the directions there, it would appear I need to increase my number of exemptions/allowances from 4 to 9. (Without the newest kid, it would be 8). The last time I updated my W-4 was in 2006.

That’s a pretty big jump.

Has anyone else here evaluated their position and had the same result?

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10 Answers

PandoraBoxx's avatar

Congratulations on the new baby! The IRS has a calculator to demystify the form.

srmorgan's avatar

Additional congrats on the baby boy!!

The IRS form is designed to withhold an amount every paycheck such that your total annual withhodling will equal or be relatively close to your total income tax liability at the end of 2010.
In general if you have nine dependents including yourself, then 9 exemptions is the right amount. This depends on your financial situation, deductions that you may have that the IRS does not take into consideration when completing the W-4 and credits that might be of use to you during the year or when you file your taxes.

When we were audited by the North Carolina Dept of Revenue (a lovely pair of guys) they examined our payroll for anyone taking more than ten exemptions, theorizing that anyone taking that many deductions was some type of tax protester who was deliberately overwithholidng in order to avoid filing a return at year-end. We had no one in that category but I am confident that if we had a timely and accurate W-4 then we would have avoided any issues with the auditors.

SRM

robmandu's avatar

Thanks, @PandoraBoxx… according to the IRS calculator, my math was right… it also says I should add up to 9.

robmandu's avatar

@srmorgan, I don’t have 9 dependents (incl. myself)... just 5. I think this Section G (Child Tax Credit) has introduced some new considerations.

srmorgan's avatar

There is no crime in overwithholding and many people do it. In the last few years, I had three children at home, now only two and I claimed married – 9 due to our large mortgage interest deduction and medical expenses that exceeded the 7.5% threshhold on schedule A.

Take 9 exemptions if that is how the form works out for you.

SRM

robmandu's avatar

Not worried about “crime”... just don’t want to find myself in a situation where I unexpectedly owe taxes when I file in 2011.

It’s kinda frustrating… because like @srmorgan suggested originally, the math used to be super simple. For this year with the new baby here, I figured I’d just need to +1 the value from my previous W-4.

Now, as it turns out, I have no idea whatsoever what “9” corresponds to. If I was standing pat with just two kids, I still should update the W-4 to 8 due to whatever the new math is.

Point is, everyone should likely consider revisiting their W-4 allowances for 2010. They may be far overpaying taxes… leading to a larger refund than expected.

[ In N.C, as @srmorgan likely knows, this is a bad thing. First, the state income tax includes your federal refund as taxable income. And second, due to N.C.‘s budget shortfall, they were (are?) planning to hold on to individual’s state refund until later in the year to give the government a nice, fat interest-free loan. ]

lilikoi's avatar

I changed mine from 1 to 8 because I don’t like the fact that the government withholds borrows earnings from you on the premise that you will owe tax in the future, and does not pay interest. I wanted less money withheld and more up front to invest. I was told that so long as you are within a certain threshold it is fine; go above and you trigger questions. They still withheld money, but considerably less, and instead of getting a refund, I now make a payment.

I don’t know what your particular circumstances are but in my experience it doesn’t seem like going up one digit will have much effect.

PandoraBoxx's avatar

It sounds like the government has finally realized that if your household income is under $60,000, it’s hard to raise kids on that. I personally have always claimed zero deductions, and have always received a modest refund from both federal and state. There’s nothing that says you have to take extra deductions with the birth of the baby. I would ask your HR department what the difference would be in your check. It may not be worth the hassle at tax time.

robmandu's avatar

@PandoraBoxx… funny you suggest that. I did ask HR (well, actually, the Finance dept). They suggested I talk to an accountant. I opted then for Fluther. ;-D

YARNLADY's avatar

The deductions allowed are not only based on the number of dependents you have, but on the overall itemized deductions you can take on the long form of the tax return. I suggest you get a good computer tax program and do a simulated return every four months or so in order to keep your deductions current.

We hate giving our money to the IRS, and then having to ask for it back. We keep our deductions as high as allowed, and put the extra money in an interest earning account.

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