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happysmileylady 10-04-2012 05:37 PM

Tax withholding question
 
I asked this on a different board I am on and am wondering what others here think.

DH and I are pretty sure we have met our federal income tax liability for the year. Like 95% sure. We could really use more money coming in, so we want to decrease how much is coming out of our paycheck for federal withholding.

We changed our exemptions to 10, and today we got the first stub with the change in effect. It did decrease how much was withheld for federal income tax but not quite as much as we expected. But we were close, within like $5 or $6.

But as I was looking it over, the "Additional Withholdings" section caught my attention and got me thinking...

Could we change our exemptions to something really high, like 18, that would make our withholdings zero, but then, put a specific amount under withholdings, so that all that comes out is exactly the amount we dictate? Like, are the withholdings that come out under the "additional withholdings" category treated any differently or anything?

kanga1622 10-04-2012 05:46 PM

Absolutely. You can put whatever you want on your w4.

Eta: the IRS doesn't care how your money comes in through payroll, as long as by the end of the year you are paying in the total amount required.

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KrisM 10-04-2012 07:27 PM

Re: Tax withholding question
 
Yep. I used to do it that way and change it every July or so. I was always within about $30 of exact when I did the tax return the next year.

Make sure you're counting the new baby in your calculations. If you didn't, you're even better off.

Hitchkids 10-04-2012 07:27 PM

Re: Tax withholding question
 
I will say that once you get to a certain point, increasing the deductions doesn't really change things too terribly much. Chances are that you won't see much of a difference if you continue to change it. At least that has been our experience. We have 9 kids and I've noticed as we've made the changes with the last few kids to increase the deductions, it hasn't changed the amount coming out of the checks at all.

jjordan 10-04-2012 07:43 PM

Re: Tax withholding question
 
They're going to continue taking out social security and medicare regardless, I think. Check what is being withheld for federal income taxes (and state income taxes). If that's already 0 or close to it, then you're not going to be able to change things much.

But in response to your original question, yes, you can definitely do that if you want.

happysmileylady 10-04-2012 08:16 PM

Re: Tax withholding question
 
All we are looking to change is the federal income tax withholding. FICA, Medicare, State, County, none of that we are looking to change, just the federal withholding. What we are thinking is that if we can get the federal withholdings down to zero then by specifying a particular amount for additional withholdings is that we are able to exactly manage how much the federal income tax that comes out for the last 12 paychecks of the year.

We don't want to change the state because Indiana has some strange formula and we don't know if we have met our state or county income tax liability yet, so we want to leave the state as is. And I know we can't change the FICA or medicare, but tracking the last few paychecks, those seem to be very consistent so even though we can't change them to whatever we want, at least they are easy to budget.

I think that's what we are going to do. We want to have $25 in federal income tax withholding taken out each week. So I think we are going to change our federal exemptions to something really high, like 18 (which was suggested by the IRS withholdings calculator) so that the formula takes $0 out. Then we are going to put $25 in the additional withholdings column so that $25 is all that's taken out each week in federal income tax withholdings.

Like I said, we are already pretty sure that we have had enough withheld throughout the year to cover what we are pretty sure we will be liable for in federal income taxes. We will probably be getting a small refund. We just want to have a small amount taken out for this last quarter, just in case. I have been through the IRS withholdings calculator a few times, a few different ways, with a few different estimates on what our total income will be (with the new baby, and with losing DD1 on the child tax credit because she turns 17 in December) and everything is telling me that we have already met the tax liability, so I think we are good in regards to that. But, just in case, we just want a little bit more withheld.

KrisM 10-05-2012 06:02 AM

Re: Tax withholding question
 
I find the calculator here: http://www.dinkytown.net/java/Payroll.html to be pretty accurate. Put in your numbers and you can tweak things to make them match the paycheck you recently got. Then, put the same numbers in, but change the number of withholdings and see what it does to the Fed. tax.


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