Author Topic: completing a w4  (Read 2692 times)

themagicman

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completing a w4
« on: December 22, 2015, 08:31:13 AM »
I figured out how much tax I will end up owing for 2016. I also figure out how many federal withholdings I need to claim to get it close to that amount with a slight cushion. The total was 5 (Even though it is just me and my wife and she also works). I sent a request to my employer to change the withholding to 5 and they said they would but asked my to file out a W4 for their records.

Problem is that if I filed out a W4 correctly with the questions they ask I would only have 2 federal withholdings. Those of you who increase your withholding amount to accurately withhold your liability, do you just lie on the W4? Like say I have 3 more dependents than I do when filing out the form? Is this a no no with the IRS or my employer? Or is there another way to do this to get it correct? Thanks!

v8rx7guy

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Re: completing a w4
« Reply #1 on: December 22, 2015, 08:35:37 AM »
There are factors beyond just the questions they ask you on the W4 form that can affect how much taxes you owe.... contributions to IRA's, owning a home, student loan interest, etc. are some examples.  Could you post up what you think you are going to owe for 2016 so that we can double check your math?  Reason being, depending on how well you know the system you may be mistaken on how the with holding system works.

Frugalman19

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Re: completing a w4
« Reply #2 on: December 22, 2015, 08:35:58 AM »
A w4 is informational only, the questions are to help you, you are not required to fill them out. Put married 5 and check your projections In June and if you are under withholding change it back to married 1-2 for the rest of the year. It's not a perfect science, this is what I do for my tax clients.


smalllife

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Re: completing a w4
« Reply #3 on: December 22, 2015, 08:37:57 AM »
The worksheet part of the W4 is just for you, simply put 5 in line 5 (total # of allowances) and submit.  They just want it on file so you don't come running to them saying it's their fault you owe taxes.

themagicman

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Re: completing a w4
« Reply #4 on: December 22, 2015, 08:49:13 AM »
I believe I have the tax situation right but would appreciate a double check. My wife has $0 withheld and with 5 exemptions mine would be $85 a paycheck ($2,210 a year) which would give me a little cushion.

Me   Income       $65,000.00
   HSA              -$3,350.00
   401K              -$12,350.00
Wife   Income       $42,000.00
   457B              -$18,000.00
   403B              -$16,680.00
   Health Insur  -$1,680.00
   TRS               -$2,520.00
   Teacher Exp  -$250.00
MISC   Misc Income   $1,000.00
IRA   Trad IRA        -$11,000.00
      
      
Total Income        $42,170.00
      
Standard Deduction   -$12,600.00
PPersonal Exemption   -$8,000.00
      
Taxable Income   $21,570.00
10% Bracket   $1,855.00
15% Bracket   $453.00
Savers Credit   -$400.00
Total Tax   $1,908.00

dandarc

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Re: completing a w4
« Reply #5 on: December 22, 2015, 09:06:38 AM »
Computation looks good to me.

One thing you might consider - if you can make another $5,170 in contributions to the 401K, you could get to the 50% saver's tax credit.  That would wipe out your federal income taxes completely - so you'd save $1908 / $5170 = 37%.  You're even closer to the 20% saver's credit - $2170.  Back-of the napkin indicates getting there would net you 2170 * 15% = 325.50 tax saved + $400 additional saver's credit = $725.50.  Over 33% marginal rate to save making that move.

If you think that is possible, but you're not sure, as a strategy, I would max out your 401K and plan on lower IRA contributions.  Then in 2017 when you're doing your taxes, you might find you have enough to throw at the IRA to get that savings.  By putting the 'planned' money into 401K, you'll have flexibility come tax time to manipulate your AGI with tIRA contributions.  Whereas after the end of the year, if you've maxed your IRAs, you might not be able to put more than planned into the 401K.

themagicman

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Re: completing a w4
« Reply #6 on: December 22, 2015, 09:11:25 AM »
Computation looks good to me.

One thing you might consider - if you can make another $5,170 in contributions to the 401K, you could get to the 50% saver's tax credit.  That would wipe out your federal income taxes completely - so you'd save $1908 / $5170 = 37%.  You're even closer to the 20% saver's credit - $2170.  Back-of the napkin indicates getting there would net you 2170 * 15% = 325.50 tax saved + $400 additional saver's credit = $725.50.  Over 33% marginal rate to save making that move.

If you think that is possible, but you're not sure, as a strategy, I would max out your 401K and plan on lower IRA contributions.  Then in 2017 when you're doing your taxes, you might find you have enough to throw at the IRA to get that savings.  By putting the 'planned' money into 401K, you'll have flexibility come tax time to manipulate your AGI with tIRA contributions.  Whereas after the end of the year, if you've maxed your IRAs, you might not be able to put more than planned into the 401K.

Thanks for looking it over and the suggestion! I have been wishing that I could do this to max out the savers tax credit but unfortunately I cannot. It is actually a Simple IRA from my employer, not a 401k. I just had it on my spreadsheet as a 401k for simplicity. Unfortunately the contribution limit is $12,500.

dandarc

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Re: completing a w4
« Reply #7 on: December 22, 2015, 09:14:09 AM »
Computation looks good to me.

One thing you might consider - if you can make another $5,170 in contributions to the 401K, you could get to the 50% saver's tax credit.  That would wipe out your federal income taxes completely - so you'd save $1908 / $5170 = 37%.  You're even closer to the 20% saver's credit - $2170.  Back-of the napkin indicates getting there would net you 2170 * 15% = 325.50 tax saved + $400 additional saver's credit = $725.50.  Over 33% marginal rate to save making that move.

If you think that is possible, but you're not sure, as a strategy, I would max out your 401K and plan on lower IRA contributions.  Then in 2017 when you're doing your taxes, you might find you have enough to throw at the IRA to get that savings.  By putting the 'planned' money into 401K, you'll have flexibility come tax time to manipulate your AGI with tIRA contributions.  Whereas after the end of the year, if you've maxed your IRAs, you might not be able to put more than planned into the 401K.

Thanks for looking it over and the suggestion! I have been wishing that I could do this to max out the savers tax credit but unfortunately I cannot. It is actually a Simple IRA from my employer, not a 401k. I just had it on my spreadsheet as a 401k for simplicity. Unfortunately the contribution limit is $12,500.
Ah - yeah SIMPLE kind of sucks relative to 401K for the employee.  Better than a stick in the eye, as my dad would say though.

v8rx7guy

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Re: completing a w4
« Reply #8 on: December 22, 2015, 09:19:27 AM »
I believe I have the tax situation right but would appreciate a double check. My wife has $0 withheld and with 5 exemptions mine would be $85 a paycheck ($2,210 a year) which would give me a little cushion.

Me   Income       $65,000.00
   HSA              -$3,350.00
   401K              -$12,350.00
Wife   Income       $42,000.00
   457B              -$18,000.00
   403B              -$16,680.00
   Health Insur  -$1,680.00
   TRS               -$2,520.00
   Teacher Exp  -$250.00
MISC   Misc Income   $1,000.00
IRA   Trad IRA        -$11,000.00
      
      
Total Income        $42,170.00
      
Standard Deduction   -$12,600.00
PPersonal Exemption   -$8,000.00
      
Taxable Income   $21,570.00
10% Bracket   $1,855.00
15% Bracket   $453.00
Savers Credit   -$400.00
Total Tax   $1,908.00

I haven't plugged the numbers in my spreadsheet, but there are no glaring issues to me and seems very plausible.  Congrats on a badass lifestyle!

BarkyardBQ

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Re: completing a w4
« Reply #9 on: December 22, 2015, 09:50:16 AM »
Savers credit is determined by taxable income - (standard deduction + personal exemptions), not just taxable income?

dandarc

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Re: completing a w4
« Reply #10 on: December 22, 2015, 09:55:26 AM »
Savers credit is determined by taxable income - (standard deduction + personal exemptions), not just taxable income?
AGI.  So before deductions and exemptions.

https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit

BarkyardBQ

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Re: completing a w4
« Reply #11 on: December 22, 2015, 10:01:01 AM »
Thanks!

johnny847

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Re: completing a w4
« Reply #12 on: December 22, 2015, 10:19:37 AM »
Savers credit is determined by taxable income - (standard deduction + personal exemptions), not just taxable income?
AGI.  So before deductions and exemptions.

https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit

And to add onto that, I have never seen a single deduction or credit that uses taxable income (or taxable income less deduction + exemption) as it's criteria for qualification. All of them use AGI.
(Of course, there may be exceptions out there, but I doubt it. I always assume that it's based on AGI until I find evidence to the contrary).

BarkyardBQ

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Re: completing a w4
« Reply #13 on: December 22, 2015, 10:28:36 AM »
So AGI is...?

income - (401k deferred savings + ira contributions + hsa contributions)

johnny847

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Re: completing a w4
« Reply #14 on: December 22, 2015, 10:32:22 AM »
So AGI is...?

income - (401k deferred savings + ira contributions + hsa contributions)

AGI is what's on the line at the bottom of the first page of the 1040. I know that's not a satisfying answer, but there's a large number of deductions, and the list of deductions can change from year to year.
An incomplete list of examples of what you've left out: student loan interest deduction, educator expenses, moving expenses, domestic production activities.

v8rx7guy

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Re: completing a w4
« Reply #15 on: December 22, 2015, 10:34:38 AM »
So AGI is...?

income - (401k deferred savings + ira contributions + hsa contributions)

It is the number you put in line 37 & 38 of your 1040 form. Yes, you are generally coorect, but there are other common factors which may lower your AGI such as student loan interest, tuition & fees, educator expenses etc.

dandarc

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Re: completing a w4
« Reply #16 on: December 22, 2015, 10:36:56 AM »
So AGI is...?

income - (401k deferred savings + ira contributions + hsa contributions)

Roughly.  It is at the bottom of your 1040, if you want to see everything in the computation.

The saver's credit is interesting (to me) because most IRA-related figures use Modified AGI.  Example: you add back in any tIRA contributions, and some other things, to determine if you qualify to take the tIRA deduction.  But with the saver's credit, you use AGI.  So the same tIRA contributions that the saver's credit is rebating can be used to qualify for the credit. 

Makes the game more fun to play, and makes traditional contributions more appealing, even at what would otherwise be lower tax brackets - see the computations where you can get a marginal tax savings in the 30%+ range even though the OP is at the bottom of the 15% federal tax bracket..  Flattens the curve to an extent when you're doing Roth vs. Traditional math.