Help me fill out my W4 + DE4

[dragoncar]

Hi tax experts.  I'm trying to get our withholding right for next year (this year was a disaster that only turned out OK due to some futzing around with additional withholdings and excel).  I'm having trouble because I'm getting pretty different answers from Federal (W4) and California (DE4) forms.

For Federal W4, I'm filling out the "Two Earners" section on the back.  My understanding is that 401k contributions do NOT count as "Adjustments to income," right?  That seems counterintuitive to me, since I'd expect the computer to determine my withholdings based on an annualization of my gross income.  I did look at Publication 505, and that's what makes me think 401k contributions should not be entered anywhere on this form (but it's not explicit).  If anyone can confirm that would be great.  Based on this, it looks like I need to take 0 allowances, plus additional withholding (despite pretty high deductions for mortgage, state income tax, and property tax).

The California DE4 is the opposite.  Again, I don't include 401k in "adjustments to income."  I fill out the form using half the deductions, and still come up with a bunch of additional allowances.  Alternatively, if I use all the deductions, but divide the allowances between me and my wife, it's still a high number.

Is this typical?   In other words, do other people with high income and high deductions end up with 0 allowances and additional withholding?  Do other people in California have this disparity between their W4 and DE2?  Lets ignore any AMT issues for now... I just want to get the baseline correct.

And before anyone calls me a newb, I did in fact try Google for this information.  Any help appreciated.

[johnny847]

If you want to get your withholdings right, the best thing to do is actually to ignore all the questions on the form. There's no need for publication 505 either.

Predict your tax bill for 2016. If you want the 2016 brackets you can find them at Forbes.

Then use IRS publication 15 to figure out how much your employer will withhold based on your withholding settings.
Note that for the purposes of withholding, your employer will withhold taxes on money after traditional 401k/403b/457b contributions.

I'm sure California has a similar document.

[dragoncar]

If you want to get your withholdings right, the best thing to do is actually to ignore all the questions on the form. There's no need for publication 505 either.

Predict your tax bill for 2016. If you want the 2016 brackets you can find them at Forbes.

Then use IRS publication 15 to figure out how much your employer will withhold based on your withholding settings.
Note that for the purposes of withholding, your employer will withhold taxes on money after traditional 401k/403b/457b contributions.

I'm sure California has a similar document.

Thanks, I'll take a look.  I do already have a detailed spreadsheet that calculates our expected tax liability for state and federal, including AMT and similar adjustments.  I almost wish I could just have no withholding and make quarterly estimated tax payments... it would be easier.

BTW, here it is for CA:
http://www.edd.ca.gov/pdf_pub_ctr/16metha.pdf
http://www.edd.ca.gov/pdf_pub_ctr/16methb.pdf


Double edit... I was despairing at having to make yet another spreadsheet for these withholding tables, but remembered you can use paycheckcity.com to simulate your paychecks with different withholdings.  So a little trial and error should get me to the correct withholding.

[johnny847]

If you want to get your withholdings right, the best thing to do is actually to ignore all the questions on the form. There's no need for publication 505 either.

Predict your tax bill for 2016. If you want the 2016 brackets you can find them at Forbes.

Then use IRS publication 15 to figure out how much your employer will withhold based on your withholding settings.
Note that for the purposes of withholding, your employer will withhold taxes on money after traditional 401k/403b/457b contributions.

I'm sure California has a similar document.

Thanks, I'll take a look.  I do already have a detailed spreadsheet that calculates our expected tax liability for state and federal, including AMT and similar adjustments.  I almost wish I could just have no withholding and make quarterly estimated tax payments... it would be easier.

BTW, here it is for CA:
http://www.edd.ca.gov/pdf_pub_ctr/16metha.pdf
http://www.edd.ca.gov/pdf_pub_ctr/16methb.pdf


Double edit... I was despairing at having to make yet another spreadsheet for these withholding tables, but remembered you can use paycheckcity.com to simulate your paychecks with different withholdings.  So a little trial and error should get me to the correct withholding.

Oh then you're already like 80% there. Figuring out your expected tax liability is the hard part.

I forgot the simpler approach. Just to put down a few allowances. Let's say 5. Then look at your paycheck and calculate how much additional withholding you need (dollar amount) per paycheck for the rest of the year. Put this down on line 6 and resubmit the W4 to HR.
Looks like you can do this with the DE-4 also (line 2).

This method assumes that you'll have claimed enough allowances such that you need to increase your withholding by specifying a dollar amount. If you haven't claim more allowances for your next paycheck and repeat.

[dragoncar]

I forgot the simpler approach. Just to put down a few allowances. Let's say 5. Then look at your paycheck and calculate how much additional withholding you need (dollar amount) per paycheck for the rest of the year. Put this down on line 6 and resubmit the W4 to HR.
Looks like you can do this with the DE-4 also (line 2).

This method assumes that you'll have claimed enough allowances such that you need to increase your withholding by specifying a dollar amount. If you haven't claim more allowances for your next paycheck and repeat.

Thanks... I though it was going to be this easy last year, but the problem came from irregular paychecks (I front load my 401k, wife back-loaded, also had unpaid income one month and then they corrected it the next month, so on an so forth... quite the nightmare where I was constantly asking for my wife's pay-stubs because apparently she can't access them online... I kept thinking it was going to end but every month was a new surprise.  On an annual basis, however, it was completely expected)

[MDM]

See also http://forum.mrmoneymustache.com/taxes/best-way-to-calculate-w-4-exemptions-for-2016/ for similar discussion.

Based on our experience it is not at all surprising for the number of state and federal allowances to be significantly different.  Depends on your income sources and how they are taxed by fed and state.