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.

So Stimulating, I Forgot How Much…

Q.  I’m doing my own taxes this year.  I can’t seem to remember how much my stimulus payment was back in 2008.  How do I find this amount?

A. This is the most common question asked to me this year.  Apparently, the government stimulus payment received by taxpayers last year was not very stimulating.  No one can rememer how much they received.  Thankfully, the IRS has an online tool available that lets you determine how much you received.  You can find it here. You will need to know the social security number of the primary filer of your tax returns, the marital status on your 2007 tax return and the number of exemptions claimed on your tax return.  Once you enter all of this information, you can se how much you received.

Everyone received a mailer from the IRS explaining the amount earlier in 2008.  Hopefully you kept that document.  It will be useful when preparing your return. If you utilize the services of a professional tax preparer, you will also need to give it to him/her to properly complete your return.  Remember, the stimulus payment is not taxable income so it does not need to be claimed somewhere on your return.   The purpose of identifying the amount you received is to determine if you are owed an extra cash.

On a side note, remember all the advantages of filing with a professional preparer. Professionals…

• utilize state of the art software to handle all new tax laws and track changes to your situation year over year
• are studied up and trained in changes and can make recommendations based on your situation
• can answer questions throughout the year if an unexpected financial situation occurs
• can answer what-if questions to help you make the right decisions without running fake tax returns
• are more flexible and can make judgment calls based on their experiences.  Software can’t do this!
• have time and experience to handle complex returns that simply are too confusing for the common taxpayer

So…if you want to take the risk and hassle out of tax preparation, contact your local professional.  And…if you already use a preparer and are happy with them, tell your friends!!

Withholding in more than one state

Special Note: Dear readers, Thanks for your patience last week. There were two problems with the blog. Due to a configuration issue, it was down for a few days. Also, I was unable to post due to a very remote cabin for a week-long vacation. Things will return to normal now will at least weekly posts on Wednesday.
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Q. I worked in Arizona for the first quarter of this year. I moved to Read more »

Economic Stimulus Payments are late?

Q. I looked at the Stimulus payment schedule and mine was due almost 2 weeks ago. What do I do?

A. The answer to this lies somewhere deep within the bowels of the IRS. While most people are getting direct deposits and checks according to schedule, it was a huge undertaking to get that much money to that many people in that short of a time frame. That being the case, there have been Read more »

Too Much Withholding = Free Loan to the Government

Q. I had way too much withholding last year and got a huge refund when filing my tax return. How do I change that?

A. This blog is coming from the floor of the Exhibit Hall at the American Payroll Association 2008 Congress in Austin, TX. With almost 2000 payroll folks surrounding me, I get to see the other side of your question as well. Payroll folks sometimes can’t understand why the regular employees don’t Read more »

Economic Stimulus Schedule

Now for the good part: How much do we get as part of the economic stimulus payment from the government and when does it arrive?

Let me remind you that you must file a tax return this year in order to receive your payment. That being said, the value that is on your Total Tax line on your 1040, 1040A or 1040EZ form dictates the amount of your payment up to the limits listed below. On the 1040 form that will be line 63.

Individuals: at least $300 and up to $600
Married couples: at least $600 to $1200.

Recently, the IRS issued a calendar as to when the payments would actually be going out. As usual, it is based on the last two digits of your Social Security number. Also, those who requested direct deposit will get their money before those who requested check refunds for their 2007 tax return. Following is a chart issued by the IRS for that schedule:

Important Update: The Treasury Department announced in late April that payments will begin 1 week earlier than originally scheduled. The dates listed above from the original IRS news release should be considered estimates now. Your payment will likely arrive earlier.

Big Tax Refund or Not?

This is the first installment of the Ask CPA Sam blog. I will be answering questions submitted to me through this blog and through PaycheckCity.com’s contact page.

Q. I get a large tax refund every year. It really helps me pay my bills. Some people says it’s not so good. Can you explain?

A. This is one of the most common questions from my tax practice. The simplest way to look at this is that a big refund is an interest-free loan to the government. You pay penalties when you underpay, but get nothing if you overpay. Your best bet is to make use of your money during the year and get your tax liability to match your payments. Tax liability is the amount you actually owe found on line 63 of the 1040 tax return form. Your payments are the amount withheld from each paycheck. If managed correctly, your refund will be small, or you may pay a little extra in. This way, you have more take home pay and can either invest the difference or pay off your bills a little earlier than you thought.

You can adjust your federal withholding by submitting a new Form W-4 to your payroll department. Your state may have a similar form. You can find a very comprehensive list here.