W-4? Number of Allowance? WTF? Please Help!

[akshatp]

Hoping one of you AT tax gurus can help out here. We just had a baby in September, our first. Me and my wife both work for the same company, and currently claim 0 allowances for both federal and state.

After having a child, I figured I would just change it and claim 1 allowance, but after seeing and filling out the W-4 IRS worksheet, I am now thinking that I have had an incorrect number all along. http://www.irs.gov/pub/irs-pdf/fw4.pdf

In the worksheet, I put a "1" for lines A, C, D, E and G, making the total for line H come to 5.

Is this correct? Should I have been claiming 4 allowances this whole time??? Have we been paying EXTRA taxes this whole time or do we get them back at the end of the year anyway?

I thought number of allowances=number of dependents. Gosh I hate the IRS why cant they make things simple?

Last question, do we both change our allowances to the correct number (be it 1 or 5), or just one of us?

Thanks in advance.

 

[skimple]

You should get the taxes back when you file (depending on income level, deductions, etc), so you're given the government a short-term loan. If you've been claiming 0 all this time, I suspect that you have been getting some nice tax refunds every year.

If you claim 4 or 5, your pay will go up, but you won't get a tax refund when you file, and you may end up owing taxes.

Its a matter of personal choice and and responsibility of managing your money. I know people that claim a high number of deductions, but they put money away to pay their tax bill in the spring, and I know others that claim 0, but never have to worry about owing money when they file.

In my situation, I claim only myself (1), and my wife claims herself and our two kids (3). We file jointly. I pay more taxes out of each paycheck then she does, but at the end of the year we usually end up getting a modest refund.

Except state - NY sucks for taxes. I always seem to owe money.

 

[EagleKeeper]

Between the two of you with an infant child; the total # allowances claimed on the W4s should be 4.

Above that will increase take home pay and setup the need to send in $$ in Dec and April of 2014 for the 2013 year

For 2012 (now); you can boost the W4 to 5 each without problems - change it back in January to a total of 4-5 between the two of you.

I use the word each based on assumption that she was working most of 2012 claiming 0.

The above are based on a standard 1040A with no itemizations.

 

[CPA]

Do what Eagle says, but more importantly don't sweat it. W4 directions are stupid anyway and don't take into account the myriad tax situations people can run into.

Better yet, go with what EA says, then mid-year, estimate your return and see if you need to adjust your W4 up or down so that your tax liability/refund is as close to $0 as possible. Tip: You can change your W4 withholdings as many times as you want throughout the year. The Payroll department may not be happy, but they can't stop you.

 

[Dulanic]

You can put 0 or 5, it just adjusts your withholding amounts. I put 1, my wife puts 5 because of our mortgage deduction. We still get money back.

 

[dabuddha]

I put 9 and I still get money back from Federal and State. This was with 2 kids and I just had my 3rd back in May.

 

[NutBucket]

Amazingly, the IRS provides a tool that makes calculating deductions a bit easier:

http://www.irs.gov/Individuals/IRS-Withholding-Calculator