General Question

Jonathan_hodgkins's avatar

Determining number of deductions to take in order to maximize my paycheck?

Asked by Jonathan_hodgkins (687points) December 24th, 2013

I am in a co-op for 6 months starting in January, before going back to school for the rest of the year. How do I figure out how many deductions to take out in order to not owe any taxes for next year and to maximize the size of the paycheck? I live in MA and will be making $22/hr for 40 hours of work/week?

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10 Answers

elbanditoroso's avatar

Too many variables and personal details.

Are you a dependent? Do you have your own dependents?

Figure that your gross salary is $880/week or around $3300/month. After social security and stuff, you clear $2500.

Multiply $2500 times 6 months, and you’re at around $15000 gross salary.

Now figure that you will have various exemptions when it comes to tax time – most importantly the personal one (which is why I asked if you are someone else;s dependent).

In the end, you’re not going to make enough to pay taxes in the first place.

So take the highest # of deductions possible on your W-9 – I think that the max. is 9 – and roll with it.

glacial's avatar

In Canada, there are simple one-page forms at the federal and provincial levels to figure this out – do you not have the same thing where you live? What state are you in (assuming the US)?

jaytkay's avatar

You probably know this already, but regardless of the number of reductions, you will pay the same tax in the end.

The difference will be made up by the size of your refund or the check you have to send in.

zenvelo's avatar

@jaytkay He’s trying to find the balance of maximum take home with zero owed and zero refund at time of filing.

@elbanditoroso has it; if that’s it you won’t owe any tax at all, so put down the max on your W-4

srmorgan's avatar

The previous answers are good advice, but don’t overdo the number of exemptions you MIGHT be able to take.

As a CFO, I went through a payroll audit here in NC and they were looking for anyone with 9 or more exemptions, considering them to be tax protestors. This flagged the employee’s tax ID for further scrutiny. Just a thought


janbb's avatar

You have two con flirting goals. If you want to maximize your take-home pay, claim no exemptions but then you might owe at the end of the year. If you claim one exemption, you will get less take-home pay but owe less or get a refund at the end of the year.

creative1's avatar

Make sure you have all your insurances taken out pre-taxed money, also maximize the amount going to your 401k so that you are saving for your retirement at the percentage that your employer matches for (this is taken pre-tax so not much of a hit to your take home and you are getting double $$ for doing it. If your employer offers Health Care Spending Accounts and Child Care Account, take advantage of the pre-tax deductions since these are expenses that you pay regardless so why not have them pre-tax. If you use the T for travel into Boston or surrounding towns and your employer offers it take advantage of the comuter rail passes. In other words if something is offered pre-tax and you use it take advantage of it since this all lowers how much you pay in taxes both out of your check and also on your return. I would also make sure you are claiming the correct number of exemptions. So if its you and a child then I would have 2 as my exemptions. I would not do the max otherwise what will happen is you will owe money for taxes and that is not fun paying out the following year in April.

gailcalled's avatar

@janbb: Have Frodo bite your spell checker. Con flirting? Just when you think you’ve seen it all…

CWOTUS's avatar

The simplest instruction that I can give is… fill out a W-4 form with your employer’s payroll or HR department and read the instructions that accompany it. As much as I hate the IRS – and I do – the instructions and simple worksheet on the W-4 form can help you greatly in determining the optimal deductions to take which will result in a near-zero tax liability at the end of the year.

Wealthadvisor's avatar

For the six months you will earn $21,120. Your tax bracket as a percent of income is 12.85% before deductions and exemptions. The tax on the full amount is $2,714, but you are not taxed on the full $21,120 as you can claim yourself ($3,950 for 2014) so your adjusted gross income will be $17,170. That tax is $2,122. (12.36% of income)

Then you take whatever deductions you have to come up with taxable income.

Since we don’t know if you have any adjustments to income or deductions it is difficult to tell what your tax would be.

Don’t worry about a 401(k), as most companies require six months employment before you even qualify. If you don’t need all your income, open an IRA instead. This will reduce you gross income and lower your taxes.

You need to do the math to determine your taxable income per week and then adjust your W-4 to give you enough withholding. Since you may make changes to the W-4, pick a number to start and then adjust as you work.

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