Subject: Question for your Blog: Adjusting W-4 Withholding AllowancesDear Kerry,
For both 2004 and 2005, my wife and I, who both work, filed our federal income taxes as “Married filing jointly,” and in both years, we received over $4,000 in federal refunds. I am assuming this is because neither of us has changed our withholding allowances on our W-4s (both of our W-4s list us as “Single” with only one allowance each).
When I went to the IRS "2006 Withholding Calculator" and entered all of our information, the web site directed each of us to REDUCE the number of allowances for 2006 to zero and to specify that we withhold an addition $45 from each of our paychecks.
I thought that if we wanted our employers to withhold LESS tax, we should INCREASE the number of allowances. I didn’t think we would need to see a CPA for something as "simple" as this. What is going on here?
Thanks in advance.
You are correct that you need to increase the number of exemptions you booth need to claim on your W-4s.
Most people don't handle the itemized deduction part of the W-4 calculator and under-count the number of exemptions they are entitled to.
This is the kid of thing you should be working with a professional tax advisor on. Nothing in the tax arena is simple enough to handle on your own.
"Nothing in the tax arena is simple enough to handle on your own." -- I'm beginning to see that.
Thanks for your quick response and help, Kerry. I certainly appreciate it.