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Does Completing Form W4 Have to Be Super Hard?

Aug 24, 2016

No. It doesn't. Below are some rough guidelines for you to follow when completing your next W-4.

Before we start, though, let me remind you to take full advantage of any available pre-tax benefits your job offers. Whether you're talking retirement plans, health ins, daycare assistance, HSAs, should really try and maximize those--especially if your employer offers matching contributions to your retirement plans.

Along with form I-9, Form W-4 is one of the first forms you get from your employer when you first get hired. These are the first forms because you're not supposed to be employed without giving your employer some documentation establishing your identity and authorization to work in the US (noticed we said "supposed to").

Some employers are "good about it" and make you fill one out every single year, around the end of December or sometime in January. Some just remind you to file a new one if something has changed in your tax situation. The rest just keep that very first W-4 like some sort of historical document in their personnel files permanently.

When you first look at the form, you're not human if there isn't a millisecond of wailing and gnashing of teeth. The thing is two pages (though often times you just get the first page). The first page consisting of the top 2/3 being a worksheet with items A-H and the bottom 1/3 is voucher (the actual W-4 part) that directs you to keep the worksheet and give the W-4 to the employer.

If you got the second page, you see it's a full worksheet that says to only use it "if you plan to itemize deductions or claim certain credits or adjustments to income". Go to our "files" section to view/download the most current form W-4.

We'll start with the kids and end with the grown-ups:

For our kids under 18, or full-time students under 24, who are dependents and therefore don't claim themselves, the W-4 comes down to to this: If they're sure they'll gross under $6300 the whole year, tell them to just fill in their info on #1; their SSN on #2; check "single" for #3, leave #5 and #6 blank; and write "EXEMPT" on line 7 and turn it in to their boss. A W-4 with "EXEMPT" on it tells the employer to only deduct FICA from the paycheck--no income taxes. The kid gets the highest possible paycheck and doesn't even have to file a tax return at the end of the year! Can't get much simpler.

If our darlings will make more than $6300 during the year, then I'd suggest "going all the way" and telling them to repeat #1-#3, but this time put a "0" on #5 and leave #6 and #7 blank. This is a "Sinle-0" W-4, and directs employers to deduct the most taxes from the kid's paycheck. Kids making >$6300/yr are required to file a tax return, so they'll be happy to get a refund instead of owing money back to IRS!

If you're not sure whether you have an ant or a grasshopper for a child, err on the side of caution and go with the "Single-0" option. If they end up making <$6300, they'll get all their money back if they file (except FICA, of course--that's yours and my future Social Security benefits!!).

Now for us "grown-ups". I actually think that our W-4s aren't that much more complicated. I don't think you need to go through the worksheets unless you want to get the thing down to the penny! Most of the time, the following guidelines should keep you from getting sticker shock at the end of your tax appointment.

A single person who has one job should file no more than S-1 if they want to break even at the end of the year. Filing S-0 pretty much guarantees a refund.

A single parent making over $35K/yr should file S-2 if they want to come close to break-even. Those who make under that amount can theoretically fill out "EXEMPT" on box #7 because they'll qualify for credits like EITC and CTC (remember CTC stops when kids turn 17).

I wouldn't recommend filing "EXEMPT" unless you really can't make ends meet. File "S-3" instead. Often, you'll find that you can live without those extra $20-$25 each week and it feels so good to get an extra $1000 or so all at once when you file your taxes. Many people fund their IRA's, pay for vacations or tuition, etc. with these "forced savings".

Married folks whose total income is over $40K/yr and claim kids should file no more than M-3 to come out even at the end of the year. Those making under that amount can theoretically claim "EXEMPT", although, again, I'd suggest going "M-3" and still have a little taken out each week.

Married filers without kids and only one working spouse should file no more than M-2 to break even--no matter how much the income. When both work, I'd suggest going M-0 or even S-1 to guarantee there's enough withheld.

Please note that the above applies to folks who have regular W-2 jobs. Those who are self-employed are supposed to calculate their taxes on a quarterly basis and send in quarterly estimated payments to IRS to satisfy the taxes owed.

Again, don't forget to take advantage of any available pre-tax deductions. They bring your taxable income down, which in turns lowers the tax you owe.

Also, if you're like me and you love to get a refund (which in many cases is just your own money back), feel free to "go lower" on the withholdings. For example, if you're married with five kids, you're not committing adultery or breaking any laws by claiming "single-0" and having them take out more taxes each paycheck.

Finally, if you want a bigger refund still, you can always fill in box #6 and tell the employer how much more they should deduct from each paycheck. Read the example below for a "make-believe" example:

Let's say you broke even when you filed your 2015 taxes. Your kids (a boy and a girl) are now old enough to appreciate Disney World, your 10-yr anniversary is in May 2017, and you haven't been since you honeymooned there. Excited, you both start looking at vacation packages to "kill two birds with one stone." After checking prices, though, you quickly realize the "two birds" obviously belong on an endangered species list--you need $5200 for your week-long trip! You're not "one of the 1%", so you scrape up funds and pay the smallest possible down payment and you're now booked for your anniversary week 2017.

As far as your earnings, 2016 is going to be a ditto of last year. Luckily, you remembered this blog and you asked your employer to give you a new W-4 form for 2016. In it, you wrote "$100" in box #6 and your boss took out an extra $5200 ($100 x 52 weeks) in federal taxes that you got back when you filed your taxes in 2017. You guys rekindled the flame of romance and even got matching Mickey Ears. Your kids are totally Disneyfied and didn't mind waiting hours to see Frozen and ride Tower of Terror and Rockin' Rollercoaster a gazillion times! In the long drive home (you only got $5200 remember?!?--no flights for you!) they both profess their love for you both and tell you how when they grow up, they want to be just like you guys.

Yes, life is perfect and you're so happy you read this blog!

Although the mathematics and figures are solid, some of the other stuff you read in that example may only exist in "make-believe land"!!

Category: Taxes