The way of the world is to make laws, but follow custom. Michel de Montaigne, 1533 – 1592
We hear this question all the time. How many exemptions (or dependents) should I claim?
The W-4 form asks for name, address, social security number, married or single status, and how many exemptions you wish to claim. Most people can get through all but the exemption piece with very little assistance. It’s the number of exemptions that’s the stumper question.
Most people realize that the more exemptions they claim, the higher the paycheck they’ll receive. Of course the counter to that is you’ll receive a lower refund (really not so bad) or you will owe (perhaps really bad) come tax return time. It’s a little bit of a dance choosing the appropriate number of exemptions.The W4 worksheet can be helpful which is the upper part of the W4. A more helpful worksheet is the IRS W4 calculator.
You can use the IRS worksheet calculator by going to this address:
And then there’s the state. Many states actually have higher taxes at the lower tax brackets. That’s because the federal government doesn’t tax you until you have met a minimum amount. Some states have their own W4 and some states use the federal w4. Regardless, you may always specify that you want more or less exemptions for your state income tax withholding.
Everybody’s income tax return varies and what’s right for your buddy who looks like they make the same as you may not be the case. Use the calculator or at least the worksheet. Review each year after you have filed your tax return. You may want a lower refund so claim more exemptions. Of course you may still be stinging from that unplanned check you had to write to the IRS or your state – claim fewer in that case.
You may also specify that you want additional amounts of tax to be withheld in addition to whatever the tax tables are calculating. Perhaps you are married and you know you need more money or the stimulus bill may have given you back too much money through your paycheck. You may have extra income from investments. Review your paycheck halfway through the year and ask yourself – does my withholding equal about half of what I withheld last year? Am I pretty close to the same income as last year? If either answer is no, make adjustments.