W-4: Personal Allowances

[Sid59]

I'll keep it short and sweet. I was having a talk with my friend about whether it's better to claim 1 or 2 on the W-4. He lives in his own place with no other dependents. So, he insists on 2. 1 for himself and 1 for "head of household".

What are the pros / cons of claiming 1 or 2.

thanks.

 

[dmcowen674]

Originally posted by: Sid59
I'll keep it short and sweet. I was having a talk with my friend about whether it's better to claim 1 or 2 on the W-4. He lives in his own place with no other dependents. So, he insists on 2. 1 for himself and 1 for "head of household".

What are the pros / cons of claiming 1 or 2.

thanks.

Paging EagleKeeper........ <<<<<<<<<<<<<<<<

 

[EyeMWing]

In this case, wouldn't claiming 2 be fraud?

 

[Sid59]

Originally posted by: EyeMWing
In this case, wouldn't claiming 2 be fraud?

part of my question too. dunno how it works. that's why im posting for all to see =D

 

[FoBoT]

the only difference will be how big of a refund you get back, depending on your total tax profile

basically a single dude claiming 1 will get a somewhat larger refund than a single dude claiming 2
depending on all the variables

if you go up to 3, then you would be basically breaking even/no refund or maybe paying some instead of a refund

it really depends on your income and deductions etc etc

do you both like giving the govt. a free loan each year?

 

[KK]

I got mine set to 14 allowances. I ain't giving them any more money than necessary.

BTW- I'm married with 2 kids.

 

[Sid59]

anyone know who our resident CPA's our accountants are? I wanna shoot them a PM.

 

[MichaelD]

Originally posted by: FoBoT
the only difference will be how big of a refund you get back, depending on your total tax profile

basically a single dude claiming 1 will get a somewhat larger refund than a single dude claiming 2 depending on all the variables

if you go up to 3, then you would be basically breaking even/no refund or maybe paying some instead of a refund

it really depends on your income and deductions etc etc

do you both like giving the govt. a free loan each year?

Yep, I agree. I'm a single guy and I claim 2 all year; each paycheck is about $200 larger than others that make the same as I, but they claim 0.

Last year, I owed $63. The year before that, $82. I think I've got it down to a science.

I'd rather have a bigger paycheck every month than get a refund at the end of the year...a refund, BTW of money I loaned out and got no interest on.

 

[thepd7]

Originally posted by: FoBoT
the only difference will be how big of a refund you get back, depending on your total tax profile

basically a single dude claiming 1 will get a somewhat larger refund than a single dude claiming 2
depending on all the variables

if you go up to 3, then you would be basically breaking even/no refund or maybe paying some instead of a refund

it really depends on your income and deductions etc etc

do you both like giving the govt. a free loan each year?

Yes, because its like forced savings. "I" put a little extra aside each month and then buy something nice for myself when I get my refund. BTW I claim 0, I am a single college student. I know the smarter way would be to have a savings account and use it but I would only put a few dollars and month in and that seems silly.

 

[BoomerD]

Originally posted by: KK
I got mine set to 14 allowances. I ain't giving them any more money than necessary.

BTW- I'm married with 2 kids.

Not sure how long you'll be able to do that. Up till last year, the IRS required companies to report any W-4 with 10 or more exemptions or filing exempt. Now, they have changed that so that it's supposed to be automatically inspected based on percentage of income/withholding.
http://www.irs.gov/newsroom/article/0,,id=137840,00.html

 

[Imdmn04]

You can claim 2 if you are single, but not the way your friend does it.

You claim 1 allowance because no one else can claim you as dependent (ie mom or dad dont claim you on their tax)
You claim another allowance for holding only one job.

So, if no one else can claim you as a depdedent and have only one job, that is how you claim 2 allowances. You can't claim yourself as a head of household, because there is nobody else in your household.

 

[BoomerD]

Use the IRS withholding calculator:
http://www.irs.gov/individuals/page/0,,id=14806,00.html

 

[alien42]

if you buy a house and have an interest only loan then you would want to claim say 3 or 4 so you get generally a few hundred more $ per paycheck. this essentially reduces your mortgage that much per month instead of getting a large refund at the end of the year.

 

[KK]

Originally posted by: BoomerD

Originally posted by: KK
I got mine set to 14 allowances. I ain't giving them any more money than necessary.

BTW- I'm married with 2 kids.

Not sure how long you'll be able to do that. Up till last year, the IRS required companies to report any W-4 with 10 or more exemptions or filing exempt. Now, they have changed that so that it's supposed to be automatically inspected based on percentage of income/withholding.
http://www.irs.gov/newsroom/article/0,,id=137840,00.html

I remember someone saying that on here before, but so far no one at work has said anything. Although, I'm going to have to change it in the next month or so to account for the wife going back to work.

 

[EagleKeeper]

Originally posted by: Sid59
I'll keep it short and sweet. I was having a talk with my friend about whether it's better to claim 1 or 2 on the W-4. He lives in his own place with no other dependents. So, he insists on 2. 1 for himself and 1 for "head of household".

What are the pros / cons of claiming 1 or 2.

thanks.

Haad of Household requires a dependent. That justification that he is using becomes fraud in the way you are describing.

One can claim as many W4 allowances as they choose.
Anything more than 9 will get reported to the IRS. They will then flag your return to verify that the number of allowances that you are claiming matches up with your filing for that year.

By claiming more; you reduce the amound of Federal and State tax withheld from you each pay period. You get to keep the difference in your pocket (temporarily).

However, if you have less tax withheld than the minimum amount required (according to IRS guidelines) you can get hit with penalties for "underwithholding".

To get around such a situation; it is best to closely monitor that amound of taxes that you should be paying based on your income. By December; ensure that you make up the difference to avoid such penalties with a seperate tax payment BEFORE 1 January.

By claiming less; you are giving money to the IRS to use. It can be considered (as others have stated) a forced saving account without interest.

Much depends if you have the will-power to put the $$ aside each pay period where they are not touched and to also monitor the overall tax situation during December to ensure that you do not get in trouble.

As long as the IRS sees the proper amount credit for the total year; you will be safe.

 

[Sid59]

thanks for the information.

when you said, "To get around such a situation; it is best to closely monitor that amound of taxes that you should be paying based on your income. By December; ensure that you make up the difference to avoid such penalties with a seperate tax payment BEFORE 1 January. " ..

2 part question:

to monitor withholdings, is it just as simple as changing the number on the w4 and submitting it? then, taking note of the differences?

make a seperate tax payment BEFORE Janurary 1st. How is this usually done?