How do I determine the correct way to complete my W-4 so I don’t owe taxes when I file my tax returns?
Federal income taxes are collected in a “pay as you go” system. Each time income is earned, a share of the tax due should be put aside and sent into the IRS and State at least quarterly.
An employee accomplishes this through withholdings on their pay checks, a self-employed person files estimated payments.
Both types of laborers have the responsibility to ensure that the appropriate amount of taxes are being withheld or paid as they are earned.
Plus, no one wants a big tax bill due in April which will probably include penalties for under withholding of taxes due.
The W-4 is the tool an employee uses to determine his withholdings; a self employed person uses an estimated payment worksheet.
For this column we will discuss the W-4 only.
A taxpayer is allowed to enter one exemption on the W-4 for each of the following circumstances:
• If no one can claim you as a dependent.
• You are single with one job or married with only one spouse working. You also get another exemption for your spouse.
• Each of your dependents represents another exemption.
• If you are eligible to file Head of Household, claim a certain amount of Child and Dependent Care Expenses, or take the Child Tax Credit, you can take up to three more exemptions.
As you can see, a typical middle income family with dependent children may have a number of approved allowances.
In this day of two-employee families and employees with several jobs, the withholding charts fail to take into consideration the total of the two jobs or several jobs together, which is what your income tax will be based on come tax time.
For a two-person family with both having jobs it is recommended that withholdings on both be married and zero.
In most cases this is not enough withholdings to eliminate a tax due in April.
At this point most tax advisors will recommend withholding at the “single rate” and zero for both taxpayers.
When completing the W-4, remember the suggestions are only for withholding purposes.
The actual tax will be determined when you prepare your tax returns using the correct status of married filing joint and two exemptions.
If you still are in doubt as to the completion of the W-4 check out the IRS site: www.irs.gov
/Individuals/IRS-Withholding-Calculator.
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Questions for Deborah Ritz can be e-mailed to The Weekly Adirondack at WeeklyADK@yahoo.com