How Much Withholding?
Q. I recently got married in April. My wife is starting her job next week. In the past I have claimed 4 witholdings and usually get around $1,500 -$2,000 back each year. Need some help in determining if I need to adjust my withholdings… if so … how much. Also… how many withholding should my wife have taken out of her paycheck.
A. This is one of the most frequently asked questions. Unfortunately, it is not possible to answer without knowing your entire situation. I can tell you that you both need to complete a Form W-4. This form tells your payroll department exactly how many allowances you are claiming for your situation. By answering these questions as correctly as possible, you will get just a little bit too much withholding. Getting a refund of $1,500 to $2,000 shows that in the past, you could have claimed additional allowances. The objective is to get as close as possible to a zero refund, even paying a little bit. That way, you are getting the full use of your money, instead of loaning it to the government interest-free.
The key in your situation is that married tax tables usually result in lower withholding. Both of you likely need to move to the “Married” filing status. However, it is important to remember that there is a total number of allowances to which your family is entitled. These allowances must be split between the two of you. For every $3,650 of non-taxable income, you are entitled to one allowance. If you claim the standard deduction ($11,400 in 2009), meaning you don’t have enough mortgage interest, state tax or charitable deductions (for example) to itemize, your situation provides for a maximum of 3 allowances plus one for each of you. That means a total of 5 to split on your W-4s. I usually reccommend that the spouse with the higher paying job claims the allowances. The lower paying job claims zero.
There are some handy free calculators available at PaycheckCity.com that can help you plan. The Form W-4 Assistant helps you complete a Form W-4 and the Salary Paycheck Calculator helps you see what your paycheck(s) will look like when you change allowances. For specific help on your situation, contact a CPA or tax advisor in your area. They will be able to take into consideration all of the aspects of your financial situation to help you plan on paying the lowest legal amount of taxes.
