Form W-4: Can I claim as many exemptions as I want?

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Form W-4: Can I claim as many exemptions as I want?

Postby 555 » Sat Jun 29, 2013 11:29 am

I max out my 403b and 457 contributions by about mid-year.

If claim the number of exemptions I get by following the instructions on Form W-4
http://www.irs.gov/pub/irs-pdf/fw4.pdf (2 page PDF)
then too much federal tax is withheld over the year, and I get an unnecessarily large refund.
This is because the taxable income is uneven (due to uneven retirement contributions), and for each paycheck tax is withheld as if you'll be getting that same paycheck every pay period (making it look like you're in a higher tax bracket sometimes, even though you're not).

Must I claim the number of exemptions I get by following the instructions on Form W-4.

Or can I claim as many exemptions as I want on Form W-4, and it's on me to make sure I have enough withheld?

Or is it something in between (e.g. I'm not supposed to claim more exemptions, but it'll be okay if I do, as long as I have enough withheld)?
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby sometimesinvestor » Sat Jun 29, 2013 11:43 am

notice the last line on the form makes reference to penalties for perjury. If you claim a VERY large number of exemptions and are then very much underwithheld you might have a problem but generally your thoughts two and three are correct.I usually makes sure my withholdings of taxes are at least 10% more than what I owed last year . That way even if I am very much underwithhold(say I sold my walmart stock I inherited in 1975 for a few hundred thousand dollars I owe the taxes on april 15 but no penalties or interest. In general most years I get a not big refund or owe a little but sometimes its alot.

If your HR department is not troubled and you really do max out around mid year look at the first clean check (i.e not deductions on your check for retirement accounts)you get after that and project by simple multiplication how much you will need to on the rest of the years checks such that the total withheld will be something like the 10% figure I have mentioned. Then adjust line 6 on the w4 form as appropriate and submit an updated form. Check in advance, most HR departments won't mind you submitting changed forms once a year or so but some might
Last edited by sometimesinvestor on Sat Jun 29, 2013 11:54 am, edited 2 times in total.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby mike143 » Sat Jun 29, 2013 11:45 am

I claim a number them add weekly amount on top so I break even at the end of the year.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby Rainier » Sat Jun 29, 2013 12:42 pm

Our client makes $30m a year and made a $3m donation. We tried to get payroll to put 3000 exemptions on his w-4 but their system couldn't handle. I have no idea how this helps, but 3,000 exemptions was pretty cool.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby scrabbler1 » Sat Jun 29, 2013 1:01 pm

I once figured out that putting 12 on my W-4 form was the right number (and it worked out well, I was within $100 of my taxes due on state and federal, and in opposite direction). This was back in the 1980s when there were many tax brackets, pre-1986 Tax Reform Act. I thought there was a rule (after I did my 12 thing) that anything over 9 had some extra scrutiny but I can't find anything on that now.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby btenny » Sat Jun 29, 2013 1:12 pm

The W4 form used (back in 1999) to include a place for putting extra $$$ cash deductions or withholding due to outside income or loss. The instructions for this were further in the details of the form. The information was not easy to find as I recall. Look into this method as it saved me lots of issues over the years.

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Re: Form W-4: Can I claim as many exemptions as I want?

Postby House Blend » Sat Jun 29, 2013 1:23 pm

555,

You should read Pub. 505.

The IRS wrote:Alternative method of figuring withholding allowances. You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances.
The method you use must be based on withholding schedules, the tax rate schedules, and the 2013 Estimated Tax Worksheet in chapter 2. It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4.
You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. You still must give your employer a Form W-4 claiming your withholding allowances.

FWIW, I find it to be less of a hassle to contribute to employer plans at a uniform rate. Getting the contributions in 6 months earlier (on average) doesn't excite me.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby btenny » Sat Jun 29, 2013 1:28 pm

House that is how I justified my using 6-8 dependents (even though I really only had 4) as I recall. But I had to give the extra data to my HR people to back up my W4.

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Re: Form W-4: Can I claim as many exemptions as I want?

Postby mlipps » Sat Jun 29, 2013 1:53 pm

Using the withholding calculator on the IRS website: http://www.irs.gov/Individuals/IRS-Withholding-Calculator is much more accurate. I put in at the beginning that we have 0 dependents & it told me to claim 3 exemptions on my husband's W-4 & 1 on mine. I think that's a good sign that the IRS understands that, within reason, the W4 is just a tool to estimate roughly how much you need to have withheld.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby 555 » Sat Jun 29, 2013 5:18 pm

Thanks everyone.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby afan » Sat Jun 29, 2013 5:53 pm

I don't have to increase my number of exemptions, but I do find that outside income means my withholding is too always low if I follow IRS instructions.

Rather than reduce exemptions and risk being overwithheld, I track my progress during the year and occasionally have a large extra withholding, sometimes wiping out my entire paycheck late in the year. Doing it this way I have never been overwithheld (a moral outrage- lending the feds money at 0 interest), and have only occasionally paid very small penalties. Meanwhile, I hold on to my money as long as I can.
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Re: Form W-4: Can I claim as many exemptions as I want?

Postby grabiner » Sat Jun 29, 2013 10:39 pm

House Blend wrote:555,

You should read Pub. 505.

The IRS wrote:Alternative method of figuring withholding allowances. You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances.
The method you use must be based on withholding schedules, the tax rate schedules, and the 2013 Estimated Tax Worksheet in chapter 2. It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4.
You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. You still must give your employer a Form W-4 claiming your withholding allowances.


The worksheets do pretty well, but the IRS wording allows you to avoid using the worksheets if you are in a situation which they do not properly handle. (For example, if you are in the 25% tax bracket and claim a $1500 tax credit, the IRS formula tells you to treat this as if it were a $6000 deduction. If you are at the bottom of the 25% bracket, you should actually treat it as a $10,000 deduction, because the reduced withholding will be in the 15% tax bracket. You are not commiting perjury if you sign a sworn statement on a W-4 claiming one more allowance than the worksheet indicated based on this calculation.)
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