Author Topic: Best Way to Calculate W-4 Exemptions for 2016?  (Read 14051 times)

AlwaysLearningToSave

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Best Way to Calculate W-4 Exemptions for 2016?
« on: December 10, 2015, 06:41:32 AM »
The IRS and Turbotax calculators seem to assume that I want to figure out what my withholding should be in 2015.  I want to calculate for 2016.  Is there a way to change the calculators' fundamental assumptions?  Pen and paper?  Am I missing something and just being dense?

Zaga

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #1 on: December 10, 2015, 06:44:43 AM »
Check out paycheckcity.com, you can select a pay date in 2016 and it will use those values.

Now, it's not the same type of calculator as the others, but you may be able to use it to get what you want.

Personally, what I do is make my own spreadsheet based on our situation and each year's numbers (personal exemptions, standard deduction, brackets, etc).  Then I see the total amount we need to have withheld, divide it by the number of paychecks, and use paycheck city and play with the W-4 settings until it's close enough.

This got me to within a few hundred for 2015, which is way better than I used to do.

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #2 on: December 10, 2015, 07:07:29 AM »
Check out paycheckcity.com, you can select a pay date in 2016 and it will use those values.

Now, it's not the same type of calculator as the others, but you may be able to use it to get what you want.

Personally, what I do is make my own spreadsheet based on our situation and each year's numbers (personal exemptions, standard deduction, brackets, etc).  Then I see the total amount we need to have withheld, divide it by the number of paychecks, and use paycheck city and play with the W-4 settings until it's close enough.

This got me to within a few hundred for 2015, which is way better than I used to do.

I checked it out and again I can't seem to get it to look at 2016.  I clicked on W-4 Assistant, which took me here http://www.paycheckcity.com/calculator/w4assistant.html?execution=e4s1 and the first thing I have to do is select a year and 2015 is the newest year I can select. 

I'm thinking I'm going to have to either break out the pen and paper or wait until the 2016 tools come out.

Thoughts?

v8rx7guy

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #3 on: December 10, 2015, 08:26:37 AM »
I just broke out a pen and pencil and did a "mock" 2016 tax return.  You should have a pretty good idea of most of your yearly income and expenses if you're mustachian.  Things like personal exemptions, standard deductions and tax bracket break off points go up fairly consistently, so you can probably guess (e.g. personal exemption 2014: $3,950 , 2015: $4,000 , hmmm what might 2016 be?).  I found out that if I wanted to I could claim about 10 exemptions to have the IRS owe me nothing by tax time, but I'll probably claim 8 or 9 to be safe.
« Last Edit: December 10, 2015, 08:40:58 AM by v8rx7guy »

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #4 on: December 10, 2015, 02:19:01 PM »
Personally, what I do is make my own spreadsheet based on our situation and each year's numbers (personal exemptions, standard deduction, brackets, etc). 
I just broke out a pen and pencil and did a "mock" 2016 tax return.  You should have a pretty good idea of most of your yearly income and expenses if you're mustachian.  Things like personal exemptions, standard deductions and tax bracket break off points go up fairly consistently, so you can probably guess (e.g. personal exemption 2014: $3,950 , 2015: $4,000 , hmmm what might 2016 be?).  I found out that if I wanted to I could claim about 10 exemptions to have the IRS owe me nothing by tax time, but I'll probably claim 8 or 9 to be safe.
+1 to both of the above.

See http://forum.mrmoneymustache.com/ask-a-mustachian/turbo-tax-vs-cpa/msg539186/#msg539186 if you'd like a template.  Up to you to decide if that is easier or harder than starting from scratch.  As noted there, you can "...use the Payroll tab to calculate the exemption allowances needed on a W-4 to "owe a little bit" each April."

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #5 on: December 10, 2015, 03:52:34 PM »
See http://forum.mrmoneymustache.com/ask-a-mustachian/turbo-tax-vs-cpa/msg539186/#msg539186 if you'd like a template.  Up to you to decide if that is easier or harder than starting from scratch.  As noted there, you can "...use the Payroll tab to calculate the exemption allowances needed on a W-4 to "owe a little bit" each April."

Thanks MDM. 

I'm sure I will end up using this spreadsheet (or my own custom-tailored version of it) but after looking at it I think I lack enough of a fundamental understanding of how claiming of personal allowances works to be able to know how to use this. 

Looking at your spreadsheet, I do not understand how the "payroll" tab helps me back into the number of allowances I should claim on W-4.  I feel comfortable estimating the amount of tax I will owe in 2016-- I can at least stumble my way through the 1040.  But I don't understand how if I enter X it will result in Y being withheld from my paycheck.  I don't understand how I know how much will be withheld if I don't claim any allowances, I don't know how to know the value of each personal allowance I do claim (or even if each allowance is of equal value), and I don't understand how I can determine how I should divide the allowances between my wife and I.  And since your learned spreadsheet doesn't include an "Idiot's Guide" cell labeled "Put this number on your W-4, sign it, and give it to your employer," I can't figure out how this spreadsheet helps. 

Can you point a willing student in the right direction?  I haven't really spent any time in the form W-4, its worksheets and instructions (I was hoping to avoid that by using calculators).  Is that the best place to start? 

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #6 on: December 10, 2015, 05:05:27 PM »
Looking at your spreadsheet, I do not understand how the "payroll" tab helps me back into the number of allowances I should claim on W-4.  I feel comfortable estimating the amount of tax I will owe in 2016-- I can at least stumble my way through the 1040.  But I don't understand how if I enter X it will result in Y being withheld from my paycheck.  I don't understand how I know how much will be withheld if I don't claim any allowances, I don't know how to know the value of each personal allowance I do claim (or even if each allowance is of equal value), and I don't understand how I can determine how I should divide the allowances between my wife and I.  And since your learned spreadsheet doesn't include an "Idiot's Guide" cell labeled "Put this number on your W-4, sign it, and give it to your employer," I can't figure out how this spreadsheet helps. 

Can you point a willing student in the right direction?  I haven't really spent any time in the form W-4, its worksheets and instructions (I was hoping to avoid that by using calculators).  Is that the best place to start?
Excellent question.  Yes, this is not commercial software and thus lacks the documentation and help files such software will (or at least should) have.  But let's see if we can get you enough information to be useful.

The number of federal W-4 allowances (Box 5 on the W-4) should go in cell F44 on the Payroll tab.  That will change the amount withheld in each 2015 monthly paycheck and thus cell G35, the total withheld for the year.  That amount then goes to cell J56 on the Tax tab and affects cells J64 and J65 (the "Refund" or "Amount You Owe" cells).  E.g., for the numbers in the template, using 10 in Payroll cell F55 gives you a $206 refund in Tax cell J64, while 11 allowances would require a $394 payment (shown in Tax cell J65).

This was set up for a one paycheck household.  You could have Mr_ALTS_payroll and Mrs_ALTS_payroll tabs, with both feeding back to the Tax tab.  With two paychecks, there are multiple ways to get to the desired amount of withholding.  As long as you get the desired total, there is no benefit to withholding any particular amount from one paycheck or the other.

The spreadsheet assumes MFJ status so you would check the "Married" box on the W-4 - or change the tax calculations. ;)

Enough for now?  If so, great.  If not, that's ok too - just ask.

Zaga

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #7 on: December 10, 2015, 05:09:23 PM »
Check out paycheckcity.com, you can select a pay date in 2016 and it will use those values.

Now, it's not the same type of calculator as the others, but you may be able to use it to get what you want.

Personally, what I do is make my own spreadsheet based on our situation and each year's numbers (personal exemptions, standard deduction, brackets, etc).  Then I see the total amount we need to have withheld, divide it by the number of paychecks, and use paycheck city and play with the W-4 settings until it's close enough.

This got me to within a few hundred for 2015, which is way better than I used to do.

I checked it out and again I can't seem to get it to look at 2016.  I clicked on W-4 Assistant, which took me here http://www.paycheckcity.com/calculator/w4assistant.html?execution=e4s1 and the first thing I have to do is select a year and 2015 is the newest year I can select. 

I'm thinking I'm going to have to either break out the pen and paper or wait until the 2016 tools come out.

Thoughts?
I guess I use it differently.  Once I figure out how much needs to come out of each check by using Excel, I run a mock paycheck and then change the exemptions until I get to the number I want.  I use the following link, on that page you can change the date to January of 2016.  It can take me several tries to get to the right things, married or single, 0 or 2 or 3 exemptions.  Just keep trying until it works.

I'm probably not the most efficient, but this makes me the most comfortable that I'm having the right amount taken out of my checks and DH's.

http://www.paycheckcity.com/calculator/salary/

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #8 on: December 11, 2015, 07:29:13 AM »
Enough for now?  If so, great.  If not, that's ok too - just ask.

Yes.  I see now how the spreadsheet will help me determine W-4 allowances, so I think it will be enough for me to use it for now.  I'll see if I can work through it this weekend.  I think it will ultimately be very helpful for me to wrap my head around this entire spreadsheet so I think I am going to devote the time to it.  I'll also dig out my tax returns from years past and see if I can make it all reconcile. 

I'm sure I will have more questions as I dig into it. 

Thanks again.


AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #9 on: December 11, 2015, 07:30:24 AM »
I guess I use it differently.  Once I figure out how much needs to come out of each check by using Excel, I run a mock paycheck and then change the exemptions until I get to the number I want.  I use the following link, on that page you can change the date to January of 2016.  It can take me several tries to get to the right things, married or single, 0 or 2 or 3 exemptions.  Just keep trying until it works.

I'm probably not the most efficient, but this makes me the most comfortable that I'm having the right amount taken out of my checks and DH's.

http://www.paycheckcity.com/calculator/salary/

I see.  Thanks for the help.  I'll probably use this method to double check my use of MDM's spreadsheet.

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #10 on: December 11, 2015, 12:07:10 PM »
Here is the best plain-language explanation of wage withholding allowances that I have found so far, FWIW:

https://turbotax.intuit.com/tax-tools/tax-tips/Jobs-and-Career/Form-W-4-and-Your-Take-Home-Pay/INF12026.html

Key language that I had never heard explained and that helped me understand the relationship between W-4 allowances and the amount withheld from my paycheck:

Quote
In 2015, each allowance exempts $4,000 from withholding - the same amount of salary that an exemption knocks off your taxable income.

But I'm still not quite sure how the amount I earn in a pay period is extrapolated throughout the year and then divided over the year to determine the exact amount to be withheld during a given pay period. 

Edited to fix quote box.
« Last Edit: December 11, 2015, 12:09:48 PM by AlwaysLearningToSave »

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #11 on: December 11, 2015, 12:21:26 PM »
But I'm still not quite sure how the amount I earn in a pay period is extrapolated throughout the year and then divided over the year to determine the exact amount to be withheld during a given pay period. 
See the bottom right of p. 45 (Table 4 - Monthly for Married) in https://www.irs.gov/pub/irs-pdf/p15.pdf and compare with the Fed_withhold function in Visual Basic in the tax template spreadsheet.

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #12 on: December 11, 2015, 01:28:15 PM »
But I'm still not quite sure how the amount I earn in a pay period is extrapolated throughout the year and then divided over the year to determine the exact amount to be withheld during a given pay period. 
See the bottom right of p. 45 (Table 4 - Monthly for Married) in https://www.irs.gov/pub/irs-pdf/p15.pdf and compare with the Fed_withhold function in Visual Basic in the tax template spreadsheet.

I see!  THAT is what I have been wanting to understand! 

I feel validated because after looking at Table 4 on page 45 and reading "If the amount of wages (after subtracting withholding allowances) . . .," I wondered how much to subtract for allowances before using the table.  I intuitively figured that it must be the $4,000 divided by the number of pay periods in the year.  Then I scrolled around and found the information on Table 5, page 43 explaining the percentage method, which confirmed my intuition.

How do I know whether my employer uses wage bracket method, percentage method, or another method?  Can I know that without asking them?  If I ask the accounts administrator, would she even know?  Does it really matter?

Edited to fix typo.

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #13 on: December 11, 2015, 01:58:19 PM »
I feel validated because after looking at Table 4 on page 45 and reading "If the amount of wages (after subtracting withholding allowances) . . .," I wondered how much to subtract for allowances before using the table.  I intuitively figured that it must be the $4,000 divided by the number of pay periods in the year.  Then I scrolled around and found the information on Table 5, page 43 explaining the percentage method, which confirmed my intuition.

How do I know whether my employer uses wage bracket method, percentage method, or another method?  Can I know that without asking them?  If I ask the accounts administrator, would she even know?  Does it really matter?
Well figured!  That's what cell Payroll!G44 does.

All the methods should give very similar numbers.  I'm usually a penny or two off compared with what my employer calculates each month, but close enough.... :)


AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #14 on: December 11, 2015, 02:20:05 PM »
I'm getting closer.  What are columns Q through U in the Payroll tab?  And what are the "spcl" columns?  And why do columns T and U reference Column B for the first value rather than column D?

EDIT:  Rereading this I see that I basically just asked you to explain a third of the Payroll tab.  Sorry :-)
« Last Edit: December 11, 2015, 02:40:14 PM by AlwaysLearningToSave »

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #15 on: December 11, 2015, 02:42:53 PM »
I'm getting closer.  What are columns Q through U in the Payroll tab?  And what are the "spcl" columns?  And why do columns T and U reference Column B for the first value rather than column D?
Q: Quarterly numbers (just coincidence that Q=Quarterly).  Needed only if you want to check on underpayment of estimated tax (see form 2210).
R: If you have company-paid life insurance above $50K the IRS assigns an "imputed value" to that, calls it income and you pay tax on it.
S: You can delete this column.
T: Amount that goes into the federal withholding calculation
U: Amount that goes into the state withholding calculation

spcl = Special = Income that is treated as "Supplemental Income" and thus subject to special withholding rules.  See https://www.irs.gov/publications/p15/ar02.html#en_US_2015_publink1000202352.

Column B is regular W-2 income.  Column D adds regular, supplemental, and imputed incomes to get the total you should see on your year-end W-2.  Column T subtracts the W-4 allowance amount from column B so the column E calculation will be correct.  Column U is the same as T, except for state instead of federal.

seattlecyclone

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #16 on: December 11, 2015, 03:07:41 PM »
My general approach to solving this problem is to do a mock tax return around the time of the first paycheck to figure out how much tax I expect to owe that year. Look at the first paycheck of the year. If too little is being withheld, submit a new W-4 with the same number of allowances and put a dollar amount representing the shortfall into the "extra withholding" field. If too much is being withheld, add 1 to my allowances and see if that reduces the withholding by enough for the next paycheck. Repeat the previous step as needed.

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #17 on: December 14, 2015, 07:32:53 AM »
I'm getting closer.  What are columns Q through U in the Payroll tab?  And what are the "spcl" columns?  And why do columns T and U reference Column B for the first value rather than column D?
Q: Quarterly numbers (just coincidence that Q=Quarterly).  Needed only if you want to check on underpayment of estimated tax (see form 2210).
R: If you have company-paid life insurance above $50K the IRS assigns an "imputed value" to that, calls it income and you pay tax on it.
S: You can delete this column.
T: Amount that goes into the federal withholding calculation
U: Amount that goes into the state withholding calculation

spcl = Special = Income that is treated as "Supplemental Income" and thus subject to special withholding rules.  See https://www.irs.gov/publications/p15/ar02.html#en_US_2015_publink1000202352.

Column B is regular W-2 income.  Column D adds regular, supplemental, and imputed incomes to get the total you should see on your year-end W-2.  Column T subtracts the W-4 allowance amount from column B so the column E calculation will be correct.  Column U is the same as T, except for state instead of federal.

Thanks again, MDM.  I do all my financial tracking in Google Sheets for the ease of cloud access from multiple devices, so I created my own payroll sheet based on your template.  Got it figured out to where it works to within a few pennies of what my employer's statements show.  It is a little more simple than yours, though, as I ignored the cap on wages subject to payroll tax (hopefully someday it will be relevant to me) and I just created a formula using the relevant wage bracket in the percentage method to calculate my withholding rather than an all-encompassing formula.  Where does that =fed_withhold formula come from anyway?  I was unable to replicate it in Sheets or Excel.  Something you created or am I just not as adept with Excel?

Next challenge will be to tackle the Tax tab...

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #18 on: December 14, 2015, 09:08:05 AM »
Thanks again, MDM.  I do all my financial tracking in Google Sheets for the ease of cloud access from multiple devices, so I created my own payroll sheet based on your template.  Got it figured out to where it works to within a few pennies of what my employer's statements show.  It is a little more simple than yours, though, as I ignored the cap on wages subject to payroll tax (hopefully someday it will be relevant to me) and I just created a formula using the relevant wage bracket in the percentage method to calculate my withholding rather than an all-encompassing formula.  Where does that =fed_withhold formula come from anyway?  I was unable to replicate it in Sheets or Excel.  Something you created or am I just not as adept with Excel?
Within a few pennies is great and so is simplicity - well done!  Rest assured the first version we had was much simpler than the posted template.  Years of changing income and working with others to help them understand their situation did add complexity.

The fed_withhold formula is something I did to force myself to learn simple Visual Basic.  You can find the code in Excel 2013 under Developer>Visual Basic.  Don't know enough about Sheets to know where (if anywhere) it stores VB code.  The menu path in earlier versions of Excel is something like Tools>Macro>Visual Basic Editor.  See the end of this note for the code itself.

It is certainly possible to do the calculation without creating a user-defined function in VB.  E.g., see the tax calculations in the MMM case study spreadsheet, where cell L30 in that spreadsheet has something like*
=VLOOKUP(L13,$P$4:$R$10,2,1)+(L13-VLOOKUP(L13,$P$4:$R$10,1,1))*VLOOKUP(L13,$P$4:$R$10,3,1)
There L13 is taxable income, and cells P4:R10 hold the tax brackets and rates.

*"something like" means the actual formula is more complex because it allows for single, married filing jointly, and head of household filing status.


Function Fed_withhold(salary)
brkt_7 = 39454
brkt_6 = 35008
brkt_5 = 19921
brkt_4 = 13317
brkt_3 = 6958
brkt_2 = 2254
brkt_1 = 717
rate_7 = 0.396
rate_6 = 0.35
rate_5 = 0.33
rate_4 = 0.28
rate_3 = 0.25
rate_2 = 0.15
rate_1 = 0.1

base_1 = 0
base_2 = base_1 + ((brkt_2 - brkt_1) * rate_1)
base_3 = base_2 + ((brkt_3 - brkt_2) * rate_2)
base_4 = base_3 + ((brkt_4 - brkt_3) * rate_3)
base_5 = base_4 + ((brkt_5 - brkt_4) * rate_4)
base_6 = base_5 + ((brkt_6 - brkt_5) * rate_5)
base_7 = base_6 + ((brkt_7 - brkt_6) * rate_6)

    If salary > brkt_7 Then
      Fed_withhold = Round(rate_7 * (salary - brkt_7) + base_7, 2)
    ElseIf salary > brkt_6 Then
      Fed_withhold = Round(rate_6 * (salary - brkt_6) + base_6, 2)
    ElseIf salary > brkt_5 Then
      Fed_withhold = Round(rate_5 * (salary - brkt_5) + base_5, 2)
    ElseIf salary > brkt_4 Then
      Fed_withhold = Round(rate_4 * (salary - brkt_4) + base_4, 2)
    ElseIf salary > brkt_3 Then
      Fed_withhold = Round(rate_3 * (salary - brkt_3) + base_3, 2)
    ElseIf salary > brkt_2 Then
      Fed_withhold = Round(rate_2 * (salary - brkt_2) + base_2, 2)
    ElseIf salary > brkt_1 Then
      Fed_withhold = Round(rate_1 * (salary - brkt_1) + base_1, 2)
    Else
      Fed_withhold = 0
    End If
End Function

AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #19 on: December 16, 2015, 11:57:13 AM »
Next challenge will be to tackle the Tax tab...

Got a Tax tab put together that encompasses the 1040.  I don't yet have all the schedules and worksheets put together, but many of those are irrelevant to me anyway.  AMT most likely doesn't apply (but I probably should still calculate it to be sure it doesn't apply), I will probably use the standard deduction, if I have a Schedule C/Schedule SE it will only be for small amounts of money from side gigs with little or no deductible business expenses, etc. 

Building the spreadsheet was totally worth the effort to solidify my understanding of the 1040 and especially to see the relationship between wages earned, income and payroll taxes owed, and income tax withholding.  It is neat to be able to change one or two assumptions and immediately see how they affect net pay, tax withheld, etc. 

I even went back to the payroll tab and forced myself to figure out how to write an "=IF(. . .)" logical expression that correctly limits the OASDI payroll withholding according to the wage base limit. 

I'm going to go ahead and pat myself on the back and say "Not bad... for a lawyer."  :-)

Thanks to all, especially MDM, for the insight and guidance. 


AlwaysLearningToSave

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #20 on: December 16, 2015, 11:57:39 AM »
Next challenge will be to tackle the Tax tab...

Got a Tax tab put together that encompasses the 1040.  I don't yet have all the schedules and worksheets put together, but many of those are irrelevant to me anyway.  AMT most likely doesn't apply (but I probably should still calculate it to be sure it doesn't apply), I will probably use the standard deduction, if I have a Schedule C/Schedule SE it will only be for small amounts of money from side gigs with little or no deductible business expenses, etc. 

Building the spreadsheet was totally worth the effort to solidify my understanding of the 1040 and especially to see the relationship between wages earned, income and payroll taxes owed, and income tax withholding.  It is neat to be able to change one or two assumptions and immediately see how they affect net pay, tax withheld, etc. 

I even went back to the payroll tab and forced myself to figure out how to write an "=IF(. . .)" logical expression that correctly limits the OASDI payroll withholding according to the wage base limit. 

I'm going to go ahead and pat myself on the back and say "Not bad... for a lawyer."  :-)

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #21 on: December 16, 2015, 01:26:24 PM »
Building the spreadsheet was totally worth the effort to solidify my understanding of the 1040 and especially to see the relationship between wages earned, income and payroll taxes owed, and income tax withholding.  It is neat to be able to change one or two assumptions and immediately see how they affect net pay, tax withheld, etc. 
Indeed it is - well done!

v8rx7guy

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #22 on: December 16, 2015, 01:55:30 PM »
Building the spreadsheet was totally worth the effort to solidify my understanding of the 1040 and especially to see the relationship between wages earned, income and payroll taxes owed, and income tax withholding.  It is neat to be able to change one or two assumptions and immediately see how they affect net pay, tax withheld, etc. 
Indeed it is - well done!

Yes, it was so helpful for me to actually do the math on a 1040... it's not that complicated, especially if you have a "go by" from a previous year.  You really get to understand the in's and out's of taxes!

acanthurus

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #23 on: December 19, 2015, 06:58:58 PM »
I simply use TaxCaster to figure out my expected liability and an online paycheck calculator to make sure I'm taking out an adequate amount through withholding over the course of the year.

MVal

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #24 on: December 21, 2015, 10:30:21 PM »
I not too familiar with doing my own taxes, but I'm afraid I'm going to owe taxes at the end of the year. I had a second job this year, but they didn't withhold fed taxes. My 401K contributions are about equal with my gross from this part time job, plus I also added most of my bonus to 401K and put in $2850 to my HSA. If my figures are right, I'll get around $120 fed tax refund...I just hope I'm right and that I won't actually owe. I'm single and I claim 1 exemption, but maybe I should change my exemption to 2 for the last paycheck of the year?

I am fully funding my Roth this year again. I wonder if it would be wise to convert some of that into a tIRA to just make sure I'm getting a tax refund and won't owe.
« Last Edit: December 21, 2015, 10:38:13 PM by MVal »

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #25 on: December 21, 2015, 11:04:52 PM »
If my figures are right, I'll get around $120 fed tax refund...maybe I should change my exemption to 2 for the last paycheck of the year?
1) It is almost certainly too late to change your withholding for any 2015 pay at this date (unless, e.g., your employer's payroll department is one person in the office next to yours).
2) If you owe <$1000 in April there is no penalty, so if you are at all close with the $120 refund estimate all will be well.

If you compare your figures with https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ and the case study spreadsheet and get ~the same from all three it is highly likely that your calculations are correct.

dorothyc

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #26 on: April 14, 2016, 08:29:44 AM »

The fed_withhold formula is something I did to force myself to learn simple Visual Basic.  You can find the code in Excel 2013 under Developer>Visual Basic.  Don't know enough about Sheets to know where (if anywhere) it stores VB code.  The menu path in earlier versions of Excel is something like Tools>Macro>Visual Basic Editor.  See the end of this note for the code itself.

It is certainly possible to do the calculation without creating a user-defined function in VB.  E.g., see the tax calculations in the MMM case study spreadsheet, where cell L30 in that spreadsheet has something like*
=VLOOKUP(L13,$P$4:$R$10,2,1)+(L13-VLOOKUP(L13,$P$4:$R$10,1,1))*VLOOKUP(L13,$P$4:$R$10,3,1)
There L13 is taxable income, and cells P4:R10 hold the tax brackets and rates.

*"something like" means the actual formula is more complex because it allows for single, married filing jointly, and head of household filing status.


Function Fed_withhold(salary)
brkt_7 = 39454
brkt_6 = 35008
brkt_5 = 19921
brkt_4 = 13317
brkt_3 = 6958
brkt_2 = 2254
brkt_1 = 717
rate_7 = 0.396
rate_6 = 0.35
rate_5 = 0.33
rate_4 = 0.28
rate_3 = 0.25
rate_2 = 0.15
rate_1 = 0.1

base_1 = 0
base_2 = base_1 + ((brkt_2 - brkt_1) * rate_1)
base_3 = base_2 + ((brkt_3 - brkt_2) * rate_2)
base_4 = base_3 + ((brkt_4 - brkt_3) * rate_3)
base_5 = base_4 + ((brkt_5 - brkt_4) * rate_4)
base_6 = base_5 + ((brkt_6 - brkt_5) * rate_5)
base_7 = base_6 + ((brkt_7 - brkt_6) * rate_6)

    If salary > brkt_7 Then
      Fed_withhold = Round(rate_7 * (salary - brkt_7) + base_7, 2)
    ElseIf salary > brkt_6 Then
      Fed_withhold = Round(rate_6 * (salary - brkt_6) + base_6, 2)
    ElseIf salary > brkt_5 Then
      Fed_withhold = Round(rate_5 * (salary - brkt_5) + base_5, 2)
    ElseIf salary > brkt_4 Then
      Fed_withhold = Round(rate_4 * (salary - brkt_4) + base_4, 2)
    ElseIf salary > brkt_3 Then
      Fed_withhold = Round(rate_3 * (salary - brkt_3) + base_3, 2)
    ElseIf salary > brkt_2 Then
      Fed_withhold = Round(rate_2 * (salary - brkt_2) + base_2, 2)
    ElseIf salary > brkt_1 Then
      Fed_withhold = Round(rate_1 * (salary - brkt_1) + base_1, 2)
    Else
      Fed_withhold = 0
    End If
End Function

Does anyone know how to get this working in Apple Numbers? I had a futz around building a little tax brackets table and trying their version of VLOOKUP but it kept saying syntax error.

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #27 on: April 14, 2016, 01:33:51 PM »
It is certainly possible to do the calculation without creating a user-defined function in VB.  E.g., see the tax calculations in the MMM case study spreadsheet, where cell L30 in that spreadsheet has something like*

      =VLOOKUP(L13,$P$4:$R$10,2,1)+(L13-VLOOKUP(L13,$P$4:$R$10,1,1))*VLOOKUP(L13,$P$4:$R$10,3,1)

There L13 is taxable income, and cells P4:R10 hold the tax brackets and rates.

*"something like" means the actual formula is more complex because it allows for single, married filing jointly, and head of household filing status.

Does anyone know how to get this working in Apple Numbers? I had a futz around building a little tax brackets table and trying their version of VLOOKUP but it kept saying syntax error.

Does https://discussions.apple.com/thread/7195644?start=0&tstart=0 help?

jim555

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #28 on: April 17, 2016, 04:12:10 PM »
The site below will show your taxes for Federal and State income:
http://www.taxformcalculator.com/

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #29 on: April 17, 2016, 06:22:27 PM »
The site below will show your taxes for Federal and State income:
http://www.taxformcalculator.com/

Unfortunately it calculated them incorrectly for a simple test, both for federal (it ignored the saver's credit) and state (it did not subtract 401k contribution from gross pay).

dorothyc

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #30 on: April 18, 2016, 07:37:04 AM »
I haven't quite refined my spreadsheet, but this link was very helpful for Apple Numbers, especially the example of building a photography pricing calculator:

http://www.peachpit.com/articles/article.aspx?p=2315379

Waterbug

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #31 on: August 10, 2016, 09:56:37 AM »
I am new to this and trying to follow the instructions above. I am attempting to use https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ as recommended but am confused because the questions are asking about 2015 values. For example it asks that I enter my income for 2015 so far. Since 2015 is long gone should I assume that I should enter my income for 2016 so far and just ignore that it says 2015? If I were to enter my 2015 income it would be for the full year, not the 'year so far'.

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #32 on: August 10, 2016, 03:02:40 PM »
I am new to this and trying to follow the instructions above. I am attempting to use https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ as recommended but am confused because the questions are asking about 2015 values. For example it asks that I enter my income for 2015 so far. Since 2015 is long gone should I assume that I should enter my income for 2016 so far and just ignore that it says 2015? If I were to enter my 2015 income it would be for the full year, not the 'year so far'.
Probably "...enter my income for 2016 so far and just ignore that it says 2015," although I'm not sure that will give you what you want.

It's the "so far" wording that gives me pause.  I'm used to TaxCaster being used to estimate taxes for an entire year, and thus using an entire year's income (either known or projected) as input, so...?

Waterbug

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #33 on: August 11, 2016, 08:46:27 AM »
Thanks for the response! I couldn't get past the 'so far' wording so I went to https://apps.irs.gov/app/withholdingcalculator/ instead. The descriptions made more sense in that they were asking for 2016 values and were clear about either projected or year to date for each value.

My results did seem extreme so I'm hesitant to act on them until I can check them again to make sure I don't have a user error issue. I just don't have a good understanding of how each exemption on the W4 affects the actual paycheck or tax owed/refunded at the end of the year as far as actual dollars. I understand that the more I claim on the W4 the more money I will take home with each check and the less I will get in a refund. I just don't know how to quantify the difference for example between claiming married and 1 vs married and 3, etc.

I will be looking at the linked spreadsheet soon to see how I can use it as well.

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #34 on: August 11, 2016, 12:15:23 PM »
I just don't have a good understanding of how each exemption on the W4 affects the actual paycheck or tax owed/refunded at the end of the year as far as actual dollars.
The wording makes it tricky at first glance.  If you look closely, what you enter on a W-4 are a number of "allowances".  This is similar but not identical to the "exemptions" you enter on Form 1040.

Exemptions are defined by law and you get no choice on the number of those.  One subtracts "number of exemptions * amount per exemption" ($4050 in 2016) from Adjusted Gross Income (and deductions) to get Taxable Income.  The Adjusted Gross Income includes paycheck income, but also includes any other income and excludes some expenses (e.g., some student loan interest, etc.).

Allowances are a way to adjust withholding when "other income", "excludable expenses", "itemized deductions", etc. (things your payroll department doesn't know) will be significant. 

If you have more "other income" you may need to use fewer allowances than exemptions, so your payroll dept. withholds more.
If you have more deductions than standard you may need to use more allowances than exemptions, so your payroll dept. withholds less.

The change in withholding per paycheck in 2016 will be approximately $4050/(number of paychecks/yr)*(tax bracket).  E.g., if you are paid monthly and are in the 25% bracket, each allowance will change withholding per paycheck by $4050/12*25% = $84. 

At the end of the year, your actual tax owed is compared with the amount that has been withheld and you pay (or are refunded) the difference.

Waterbug

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #35 on: August 11, 2016, 08:47:39 PM »
I just don't have a good understanding of how each exemption on the W4 affects the actual paycheck or tax owed/refunded at the end of the year as far as actual dollars.
The wording makes it tricky at first glance.  If you look closely, what you enter on a W-4 are a number of "allowances".  This is similar but not identical to the "exemptions" you enter on Form 1040.

Exemptions are defined by law and you get no choice on the number of those.  One subtracts "number of exemptions * amount per exemption" ($4050 in 2016) from Adjusted Gross Income (and deductions) to get Taxable Income.  The Adjusted Gross Income includes paycheck income, but also includes any other income and excludes some expenses (e.g., some student loan interest, etc.).

Allowances are a way to adjust withholding when "other income", "excludable expenses", "itemized deductions", etc. (things your payroll department doesn't know) will be significant. 

If you have more "other income" you may need to use fewer allowances than exemptions, so your payroll dept. withholds more.
If you have more deductions than standard you may need to use more allowances than exemptions, so your payroll dept. withholds less.

The change in withholding per paycheck in 2016 will be approximately $4050/(number of paychecks/yr)*(tax bracket).  E.g., if you are paid monthly and are in the 25% bracket, each allowance will change withholding per paycheck by $4050/12*25% = $84. 

At the end of the year, your actual tax owed is compared with the amount that has been withheld and you pay (or are refunded) the difference.

Thank you so much for this! 

Waterbug

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #36 on: August 14, 2016, 10:23:01 AM »
Allowances are a way to adjust withholding when "other income", "excludable expenses", "itemized deductions", etc. (things your payroll department doesn't know) will be significant. 
...
If you have more deductions than standard you may need to use more allowances than exemptions, so your payroll dept. withholds less.

The change in withholding per paycheck in 2016 will be approximately $4050/(number of paychecks/yr)*(tax bracket).  E.g., if you are paid monthly and are in the 25% bracket, each allowance will change withholding per paycheck by $4050/12*25% = $84. 

At the end of the year, your actual tax owed is compared with the amount that has been withheld and you pay (or are refunded) the difference.

Does this math also apply when going from single to married on the W4 or just when going from married and 1 to married and 2 etc?

Background: When we were first married a couple of years ago we both updated our W4 to married and 0. We owed $900 at the end of the year. We preferred to get a refund rather than owe so we went down to single and 0. The following year we got a refund and each year it got bigger because of life changes like buying a house, having a child, and paying for childcare. We never updated our W4 with those changes. Last year we got $6k in a refund which we thought was great. It is only now after reading through these forums that I realize it would be much better to get that throughout the year instead. We both just changed to married and 1 as a guess to move in the right direction. We are paid bi weekly and will see those changes next week.

When I used the IRS calculator it said I should update my W4 to married and 18! Yikes! This would be for the remaining 10 pay periods.

We don't have any outside income to consider, just two salaries.
$77,500 salary + $1,200 bonus
$43,000 salary + $5,000 bonus
We have one young child
Pay over $10k for childcare
Property taxes on home = $2640
Interest on mortgage = $4400



MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #37 on: August 14, 2016, 09:56:18 PM »
The change in withholding per paycheck [per allowance] in 2016 will be approximately $4050/(number of paychecks/yr)*(tax bracket).  E.g., if you are paid monthly and are in the 25% bracket, each allowance will change withholding per paycheck by $4050/12*25% = $84. 
Does this math also apply when going from single to married on the W4 or just when going from married and 1 to married and 2 etc?
The math for change in withholding per paycheck per allowance applies only to changes in the number of allowances.  Changes for filing status would be different.

Quote
...Last year we got $6k in a refund which we thought was great. It is only now after reading through these forums that I realize it would be much better to get that throughout the year instead. We both just changed to married and 1 as a guess to move in the right direction. We are paid bi weekly and will see those changes next week.
When I used the IRS calculator it said I should update my W4 to married and 18! Yikes! This would be for the remaining 10 pay periods.
Although we don't have enough information to confirm that 18, it could be correct.  See below.

Quote
We don't have any outside income to consider, just two salaries.
$77,500 salary + $1,200 bonus
$43,000 salary + $5,000 bonus
We have one young child
Pay over $10k for childcare
Property taxes on home = $2640
Interest on mortgage = $4400
If there are no other itemizable deductions (e.g., charity, state income tax, etc.) then you will take the $12,600 standard deduction. 

You might also be able to take the dependent care tax credit.  Without that credit, and assuming no pre-tax deductions (i.e., no 401k, no tIRA, no HSA, etc.), it appears you will owe ~$17K in federal tax for 2016 (table below).  If you have already had approx. that much withheld year-to-date, you wouldn't need much if any withheld for the rest of the year.

You can download your own copy of the case study spreadsheet and enter your own numbers if desired (you'll have to subtract any dependent care credit yourself), or check with a 2015 version of commercial tax software.

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$6,558$78,700
Salary/Wages for earner #2$4,000$48,000
Federal Total Income$10,558$126,700
Federal tax$1,4052016 rates, MFJ, stand. ded., 3 exempt.$16,865
State/City tax$0Guess, using 0.00% * (AGI - Exempt'n)$0
Soc. Sec.$655Assumes 2 earners paying$7,855
Medicare$153$1,837
Total income taxes$2,213$26,558
Income before other expenses  $8,345$100,142


Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions3
# Children <171
# Children for EIC1
Adult #1Adult #2
Age3535
# of earners2
Total Income$126,700
Std. Deduct.$12,600
Act. Deduct.$12,600
Exemption$12,150
AGI$126,700
MAGI$126,700
Taxable$101,950
1040 Tax$17,030
AMT adder$0
Saver's credit$0
Tax after n-r credit$17,030
NIIT$0
EIC$0
Child Tax Cred.$165
Net Tax$16,865
Monthly$1,405
Mtg. Int. (approx.)$4,400
Prop tax$2,640
Item. Deduct.$7,040
VersionV8.06

Waterbug

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #38 on: August 17, 2016, 10:02:16 PM »
If there are no other itemizable deductions (e.g., charity, state income tax, etc.) then you will take the $12,600 standard deduction. 

You might also be able to take the dependent care tax credit.  Without that credit, and assuming no pre-tax deductions (i.e., no 401k, no tIRA, no HSA, etc.), it appears you will owe ~$17K in federal tax for 2016 (table below).  If you have already had approx. that much withheld year-to-date, you wouldn't need much if any withheld for the rest of the year.

You can download your own copy of the case study spreadsheet and enter your own numbers if desired (you'll have to subtract any dependent care credit yourself), or check with a 2015 version of commercial tax software.


The case study spreadsheet is awesome! I input my numbers and included our 401k contributions and Oregon state tax. It says our anticipated tax is $11,847 and when I checked our paystubs we have paid $11,880 so far (not including this pay period which we'll receive of Friday). This is so exciting!

MDM

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #39 on: August 17, 2016, 11:10:36 PM »
It says our anticipated tax is $11,847 and when I checked our paystubs we have paid $11,880 so far (not including this pay period which we'll receive of Friday). This is so exciting!

If the withholding calculator that suggested 18 exemptions also estimated a 2016 tax bill ~$11.8K +/- a few hundred dollars, then you are probably all set.  If the 18 exemption calculation had a much different tax estimate, more study is needed.

In any case, nice work and good luck!

Waterbug

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Re: Best Way to Calculate W-4 Exemptions for 2016?
« Reply #40 on: August 21, 2016, 11:43:04 AM »

If the withholding calculator that suggested 18 exemptions also estimated a 2016 tax bill ~$11.8K +/- a few hundred dollars, then you are probably all set.  If the 18 exemption calculation had a much different tax estimate, more study is needed.

In any case, nice work and good luck!

The numbers were off because I had input different amounts for the 401k contributions.  Once I adjusted the spreadsheet to match the contributions forecasted in the tax calculator (because we plan to increase our contributions for the rest of the year) there is only a $93 difference between the calculator and the spreadsheet amount. Feeling good!