Author Topic: w4 tips for $0 tax refund?  (Read 4852 times)

Lady SA

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w4 tips for $0 tax refund?
« on: January 28, 2018, 07:31:05 PM »
Why must W4s be so freakin' complicated? I swear, I just don't understand the concept of allowances (they are too abstracted from dollar amount for my brain) and make it needlessly hard for me to say how much I want taken out of a paycheck to get as close to a $0 tax refund as possible.

For the last few years, what we have done is calculate roughly what we think our tax bill will be for the year, figure out how much per paycheck we would need to withhold to hit that number, then honestly we put in a total shot in the dark guess for allowances/extra to withhold on the w4 and wait 2 weeks to see what the impact was on our paycheck. Depending on how close or far away it was from what we need to withhold, we recalculate everything based on what we just paid, and finally retry with a new w4 entry... and the cycle goes like this for weeks. All of this stupid effort and back and forth to try and get the w4 correct! And then federal and state is different, and it's just a giant, annoying headache. For 2017, even with all my hard work trying to get the withholding correct, we still owe $900 in state taxes, so obviously we're still significantly missing the mark. Makes me want to tear my hair out!! Ugh!

There HAS to be an easier way to do this rather than my method. Does anyone have any tips to share on getting your state and fed tax w4 withholding as accurate as possible? The IRS withholding calculator looks to be offline until next month, but really, that only helps me figure out how many allowances to claim, but that doesn't smoothly translate to an accurate dollar amount to get as close to my tax burden as possible, kwim?


MDM

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Re: w4 tips for $0 tax refund?
« Reply #1 on: January 28, 2018, 07:36:47 PM »
It may not help with state, but see the case study spreadsheet for federal calculations.

Syonyk

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Re: w4 tips for $0 tax refund?
« Reply #2 on: January 28, 2018, 08:31:19 PM »
Aim to underpay with your tax withholdings and make it up at the end.  May as well get an interest free loan from the government instead of giving them one.  As long as it's not so low you pay penalties, that's the better solution.

terran

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Re: w4 tips for $0 tax refund?
« Reply #3 on: January 28, 2018, 09:19:25 PM »
Why must W4s be so freakin' complicated? I swear, I just don't understand the concept of allowances (they are too abstracted from dollar amount for my brain) and make it needlessly hard for me to say how much I want taken out of a paycheck to get as close to a $0 tax refund as possible.

They're actually not that abstracted. See https://www.irs.gov/pub/irs-pdf/n1036.pdf

For example, Married Filing Jointly, paid monthly: 1) Take monthly earnings after deductions like health insurance and 401k, 2) reduce by $345.80 per allowance, 3a) multiply the amount between $963 and $2550 by 10%, 3b) or multiply the amount between $2550 and $7413 by 12% and add $158.70 (the amount from the full 10% bracket), 3c) or multiply amount between $7413 and $14713 by 22% and add $742.26 (the amount from the full 10% and 12% brackets), 3d) continue on according to the table for higher monthly income levels.

If you're a two income family and you're not getting enough withheld even with 0 allowances you can always use the single tables, or just set a dollar amount for extra withholding.

MDM

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Re: w4 tips for $0 tax refund?
« Reply #4 on: January 28, 2018, 09:53:41 PM »
It may not help with state, but see the case study spreadsheet for federal calculations.
In particular,
Quote
W-4 allowances, based on one's overall tax situation, may be tested in cells Calculations!F56:I64.   
   Enter "S" or "M" (for Single or Married) in row 59.
   Enter the number of allowances in row 60.
   See the expected refund due at filing in cell I64.  An amount due at filing will show as a negative number.
   Adjust the entries in cells Calculations!G59:H60 to achieve your desired result.
   Note that there are various "safe harbors" to avoid penalties due to under-withholding.  Caveat filer.
   Always check the results of this or any other W-4 estimator against the actual withholding and expected tax due.

catccc

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Re: w4 tips for $0 tax refund?
« Reply #5 on: January 28, 2018, 10:09:27 PM »
Line 6 of the W-4 allows you to specify an additional amount to w/h from your paycheck.  So just get it close, but under, w/ the allowances stuff (which, as others have noted, do actually have a mathematical basis) and plug in the extra you need into line 6.  Or just set aside what you need and make quarterly payments.  Or just figure out safe harbor and don't pay your taxes any earlier than you need to.

Finances_With_Purpose

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Re: w4 tips for $0 tax refund?
« Reply #6 on: January 29, 2018, 02:02:09 AM »
Keep in mind, this year is all jacked up b/c the old form doesn't account for the new tax brackets.  So you may well be overpaying. 

At worst, you do trial and error.  If you're off on year1, adjust it in year2, until voila, you end up where you want to be. 

Catbert

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Re: w4 tips for $0 tax refund?
« Reply #7 on: January 29, 2018, 11:58:10 AM »
Line 6 of the W-4 allows you to specify an additional amount to w/h from your paycheck.  So just get it close, but under, w/ the allowances stuff (which, as others have noted, do actually have a mathematical basis) and plug in the extra you need into line 6.  Or just set aside what you need and make quarterly payments.  Or just figure out safe harbor and don't pay your taxes any earlier than you need to.

This is what I've always done.  This assumes, of course, that you know what you'll owe for 2018.  I've always just aimed for whatever I owed last year.

PathtoFIRE

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Re: w4 tips for $0 tax refund?
« Reply #8 on: January 30, 2018, 08:38:19 AM »
I've always been tempted to put in 99 allowances and then in line 6 on the W4 put in the actual amount I want withheld per paycheck. Any specific danger in going this route rather than calculating it out?

hadabeardonce

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Re: w4 tips for $0 tax refund?
« Reply #9 on: January 30, 2018, 02:04:04 PM »
2017 - https://www.irs.gov/publications/p15
2018 - https://www.irs.gov/pub/irs-pdf/p15.pdf

There are methods for calculating withholding around page 46 of the PDF.

My wife and I are on track for a refund this year, so I used the links above to adjust my federal withholding so we'd receive less next year. The difference for "Married w/4 Allowances" from 2017 to 2018 for my wage range is $40/mo. I going from Married-0 in '17 to Married-4 in '18 which should net $242/mo. and deplete my refund to about $0. Hopefully I'm doing this right...

Intuit has some free tools here https://turbotax.intuit.com/tax-tools/ . I used their TaxCaster for a peek at next year, but I haven't tried their W-4 Calculator since I'm still waiting for my first paycheck of the year tomorrow.

caracarn

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Re: w4 tips for $0 tax refund?
« Reply #10 on: January 30, 2018, 02:29:09 PM »
I've always been tempted to put in 99 allowances and then in line 6 on the W4 put in the actual amount I want withheld per paycheck. Any specific danger in going this route rather than calculating it out?
Every employer I worked never let me put in what I needed.  At one point the calculation said I should have 15 allowances, but the employer would not do it even after I showed them the worksheet.  Guessing you might have same problem if you tried to submit a form with 99.

MDM

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Re: w4 tips for $0 tax refund?
« Reply #11 on: January 30, 2018, 02:44:45 PM »
Every employer I worked never let me put in what I needed.  At one point the calculation said I should have 15 allowances, but the employer would not do it even after I showed them the worksheet.
What excuse did the employer use for not following a properly submitted W-4?

HawkeyeNFO

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Re: w4 tips for $0 tax refund?
« Reply #12 on: January 30, 2018, 03:04:38 PM »
Hell, even with the maximum exemptions, I usually end up getting almost everything back in a huge refund.

Lady SA

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Re: w4 tips for $0 tax refund?
« Reply #13 on: January 30, 2018, 04:14:36 PM »
Line 6 of the W-4 allows you to specify an additional amount to w/h from your paycheck.  So just get it close, but under, w/ the allowances stuff (which, as others have noted, do actually have a mathematical basis) and plug in the extra you need into line 6.

This is kind of what we do. All the calculators tell us to take 4 exemptions (but I never know if 4 is for normal people who want a refund or would 4 exemptions get me close to the mustachian $0 refund?), so we allocate 2 exemptions each and then every few weeks we have to adjust the extra withholding dollar amount to try and get close, which is a lot more effort than I really want to do. I'm more of a set-it-and-forget-it person so it frustrates me to have to keep adjusting it when I KNOW how much I want to be paying... just make it easy for me to give you that amount of money! Jeez!
In 2017 we did get pretty close for federal taxes (only owe $150, so close enough!), but we weren't as careful with state taxes and got dinged.

@MDM  I'll take a closer look at the case study spreadsheet. Is the "withholding" section in that box the extra withholding dollar amount? That appears to be a yearly sum, so I need to divide that into number of paychecks, correct? The "Withholding" section looks very complicated so I'm hesitant to mess around with it, but with all my inputs, for 2018 looks like I would owe $6k?!? Not sure which of these boxes I'm allowed to change to see the result :)


MDM

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Re: w4 tips for $0 tax refund?
« Reply #14 on: January 30, 2018, 09:47:12 PM »
Line 6 of the W-4 allows you to specify an additional amount to w/h from your paycheck.  So just get it close, but under, w/ the allowances stuff (which, as others have noted, do actually have a mathematical basis) and plug in the extra you need into line 6.

This is kind of what we do. All the calculators tell us to take 4 exemptions (but I never know if 4 is for normal people who want a refund or would 4 exemptions get me close to the mustachian $0 refund?), so we allocate 2 exemptions each and then every few weeks we have to adjust the extra withholding dollar amount to try and get close, which is a lot more effort than I really want to do. I'm more of a set-it-and-forget-it person so it frustrates me to have to keep adjusting it when I KNOW how much I want to be paying... just make it easy for me to give you that amount of money! Jeez!
In 2017 we did get pretty close for federal taxes (only owe $150, so close enough!), but we weren't as careful with state taxes and got dinged.

@MDM  I'll take a closer look at the case study spreadsheet. Is the "withholding" section in that box the extra withholding dollar amount? That appears to be a yearly sum, so I need to divide that into number of paychecks, correct? The "Withholding" section looks very complicated so I'm hesitant to mess around with it, but with all my inputs, for 2018 looks like I would owe $6k?!? Not sure which of these boxes I'm allowed to change to see the result :)


The general rule is that cells with green backgrounds are the user-adjustable ones.

For example,

would get you close.
« Last Edit: May 30, 2018, 10:04:12 PM by MDM »

catccc

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Re: w4 tips for $0 tax refund?
« Reply #15 on: January 30, 2018, 10:28:25 PM »
Line 6 of the W-4 allows you to specify an additional amount to w/h from your paycheck.  So just get it close, but under, w/ the allowances stuff (which, as others have noted, do actually have a mathematical basis) and plug in the extra you need into line 6.  Or just set aside what you need and make quarterly payments.  Or just figure out safe harbor and don't pay your taxes any earlier than you need to.

This is what I've always done.  This assumes, of course, that you know what you'll owe for 2018.  I've always just aimed for whatever I owed last year.

Depending on how complicated your taxes are, you probably could do a quick estimate to find out about where you will land.  I do vote for just paying in safe harbor and owing, though.  Safe harbor is 100% of PY tax (or 110% of PY tax if you earn over $150K) or 90% of CY tax.

PathtoFIRE

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Re: w4 tips for $0 tax refund?
« Reply #16 on: January 31, 2018, 08:51:23 AM »
I've always been tempted to put in 99 allowances and then in line 6 on the W4 put in the actual amount I want withheld per paycheck. Any specific danger in going this route rather than calculating it out?
Every employer I worked never let me put in what I needed.  At one point the calculation said I should have 15 allowances, but the employer would not do it even after I showed them the worksheet.  Guessing you might have same problem if you tried to submit a form with 99.

I did 99 for one paycheck last year and had $0 withheld, so it's definitely possible at my organization. My assumption is that all that matters is what is owed/not owed at the end, regarding penalties, so I think/assume that it wouldn't matter if I calculated out the number of allowances needed plus the extra dollars to withhold to get me to my exact number (which is always a few thousand above what I think I'll owe). I don't see from the IRS docs that it makes any difference rather than just setting the allowances >= to your gross taxable pay and then putting the necessary amount in the extra withholding box. However I'm not all that tempted to try it without hearing from anyone else.

Now another thought that has crossed my mind is to calculate the total needed, and then time it so that the withholding all comes out of the last few paychecks. This is obviously a very dangerous idea just to get a little accelerated pay into savings, and I think this would more likely run afoul of the IRS, even if you got the calculations right, but again, I'm not certain where to even look to explore this, and wouldn't probably do it anyway even if it seemed possible.

caracarn

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Re: w4 tips for $0 tax refund?
« Reply #17 on: January 31, 2018, 12:44:12 PM »
Every employer I worked never let me put in what I needed.  At one point the calculation said I should have 15 allowances, but the employer would not do it even after I showed them the worksheet.
What excuse did the employer use for not following a properly submitted W-4?
Claimed they could not be responsible for improper withholding and felt it would cause too big a shift (I was moving from 2 to 15 allowances) and they were uncomfortable with it.

MDM

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Re: w4 tips for $0 tax refund?
« Reply #18 on: January 31, 2018, 12:50:56 PM »
Every employer I worked never let me put in what I needed.  At one point the calculation said I should have 15 allowances, but the employer would not do it even after I showed them the worksheet.
What excuse did the employer use for not following a properly submitted W-4?
Claimed they could not be responsible for improper withholding and felt it would cause too big a shift (I was moving from 2 to 15 allowances) and they were uncomfortable with it.
Oh well....

I hope that, for your sake, either
- this is not indicative of the overall management practice at that company, or
- you no longer work there. :)

Lady SA

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Re: w4 tips for $0 tax refund?
« Reply #19 on: January 31, 2018, 02:19:26 PM »
Line 6 of the W-4 allows you to specify an additional amount to w/h from your paycheck.  So just get it close, but under, w/ the allowances stuff (which, as others have noted, do actually have a mathematical basis) and plug in the extra you need into line 6.

This is kind of what we do. All the calculators tell us to take 4 exemptions (but I never know if 4 is for normal people who want a refund or would 4 exemptions get me close to the mustachian $0 refund?), so we allocate 2 exemptions each and then every few weeks we have to adjust the extra withholding dollar amount to try and get close, which is a lot more effort than I really want to do. I'm more of a set-it-and-forget-it person so it frustrates me to have to keep adjusting it when I KNOW how much I want to be paying... just make it easy for me to give you that amount of money! Jeez!
In 2017 we did get pretty close for federal taxes (only owe $150, so close enough!), but we weren't as careful with state taxes and got dinged.

@MDM  I'll take a closer look at the case study spreadsheet. Is the "withholding" section in that box the extra withholding dollar amount? That appears to be a yearly sum, so I need to divide that into number of paychecks, correct? The "Withholding" section looks very complicated so I'm hesitant to mess around with it, but with all my inputs, for 2018 looks like I would owe $6k?!? Not sure which of these boxes I'm allowed to change to see the result :)


The general rule is that cells with green backgrounds are the user-adjustable ones.

For example,

would get you close.

so only take 2 exemptions between the two of us and no extra withholding from each paycheck? That sounds more doable and less intensive, but if I remember correctly, the last time we did just 2 exemptions (~3 years ago) we got like a $3k refund and I was annoyed, which is why I started trying to put more exemptions to get closer to $0. I wonder what we did wrong back then... or maybe I'm remembering incorrectly? lol

dandarc

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Re: w4 tips for $0 tax refund?
« Reply #20 on: January 31, 2018, 02:30:43 PM »
Also note that "earner #1" in the graphic has "Single" chosen on the W-4.

MDM

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Re: w4 tips for $0 tax refund?
« Reply #21 on: January 31, 2018, 02:33:53 PM »
so only take 2 exemptions between the two of us and no extra withholding from each paycheck? That sounds more doable and less intensive, but if I remember correctly, the last time we did just 2 exemptions (~3 years ago) we got like a $3k refund and I was annoyed, which is why I started trying to put more exemptions to get closer to $0. I wonder what we did wrong back then... or maybe I'm remembering incorrectly? lol
Note that the higher earner would be withholding at the single rate.

Whatever you decide, revisiting a few times during the year where you stand on projected withholding vs. projected taxes can be worthwhile.

caracarn

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Re: w4 tips for $0 tax refund?
« Reply #22 on: January 31, 2018, 02:42:31 PM »
Every employer I worked never let me put in what I needed.  At one point the calculation said I should have 15 allowances, but the employer would not do it even after I showed them the worksheet.
What excuse did the employer use for not following a properly submitted W-4?
Claimed they could not be responsible for improper withholding and felt it would cause too big a shift (I was moving from 2 to 15 allowances) and they were uncomfortable with it.
Oh well....

I hope that, for your sake, either
- this is not indicative of the overall management practice at that company, or
- you no longer work there. :)
Latter