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I have verified that the refund Turbo Tax calculated is correct. I want to adjust my and my wifes withholdings to reduce this refund for next year.

We currently have both set to Zero deductions and no extra withheld.

However I can not seem to find out how to reduce our withholdings by X dollars per check.

I am sure that I need to claim some deductions but how many?

I have worked through the W-4 worksheets and the instructions recommend that I claim 0 on both and have an EXTRA $250 per check withheld, That is going in the wrong direction.

Does anyone have information on how many deductions to claim to reduce withholdings by x dollars????
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I have verified that the refund Turbo Tax calculated is correct. I want to adjust my and my wifes withholdings to reduce this refund for next year.

We currently have both set to Zero deductions and no extra withheld.

However I can not seem to find out how to reduce our withholdings by X dollars per check.

I am sure that I need to claim some deductions but how many?

I have worked through the W-4 worksheets and the instructions recommend that I claim 0 on both and have an EXTRA $250 per check withheld, That is going in the wrong direction.

Does anyone have information on how many deductions to claim to reduce withholdings by x dollars????


If you're using TurboTax, there is an easier way. Just open the tax planning module and use the W-4 worksheet. It will fine tune your withholding based on your overall tax scenario after accounting for taxes already withheld this year.

Ira
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If you're using TurboTax, there is an easier way. Just open the tax planning module and use the W-4 worksheet. It will fine tune your withholding based on your overall tax scenario after accounting for taxes already withheld this year.

While not necessarily "easier", IMHO the best way to estimate exemptions is to use IRS publication 15 "Employer's Tax Guide". http://www.irs.gov/pub/irs-pdf/p15.pdf

Starting at page 36 you'll find the formulas necessary to calculate your withholding within a few pennies vs. the guesstimate that the W-4 worksheet provides.

-murray
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Thanks to you both for your help.

I just quickly went the turbo tax route and as a result have another question.

Turbo tax is suggesting
WIFE: Married - 3 Personal Allowances - 0 extra withheld
ME: Single - 5 Personal Allowances - 0 extra withheld

We have only one child and are both under 65 etc. So we only have 3 exemptions on our actual taxes. Can we legally claim 5 on my W-4??????


Second question: If in Dec we add up all of our withholdings and find out that it is less that the actual tax owed for 2007 can we send an extra payment to the IRS to make up the difference and ensure that we will not have a penalty????
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Sorry did not explain the reason for my concern over the making sure we have withheld enough.

My wife is on a 9 month contract at the university, all medical insurances etc are taken out of her checks pre tax. For these 9 months she is paid bimonthly AUG 15 thru May 15. In addition, she also gets paid over the summer. For these 6 checks no insurance payments are made and the taxable base is much higher, for these six checks. Finally, to make the mess a little worse, she might not get two of those summer checks this year if certain funding does not materialize.

None of these situations seems to be covered in the Turbo Tax questions. I suspect that the witholdings will be messed up a bit by the summer pay dance, and that we might again overwithold (although hopfull by not the several thousand dollars we did last year) or underwithold. I seem to remember that you could bypass the penalty for underwitholding if you had at least the amount of taxes you owed the prior year witheld, hince my question on doing a quick makeup check in Dec. if we do not at least make that threshold.
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Sorry did not explain the reason for my concern over the making sure we have withheld enough...

Here's what I would do, have done -

I set up a spreadsheet with one sheet for my wife's wages, another sheet for mine. I put each anticipated paycheck taxable income with the date in rows.

I then used the formulas from Pub 15 that I linked to calculate withholding with a cell indicated my exemptions and another with my wife's exemptions. I have a cell showing the total withholding that I compare with Turbo Tax/HR Block.

As paychecks come in, I occasionally enter the actual taxable income and withholding as well as re-estimate our tax liability as I get more information.

My wife used to have an extremely variable paycheck from week to week and this method served me very well.

If you like, I could send you a copy of my spreadsheet.

-murray
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First, you have several options to avoid a penalty:
1. Withhold within $1,000 of actual 2008 tax
2. Withhold within 90% of actual 2008 taxes
3. Withhold within 100% of 2007 tax
4. In addition to the withholding in #2 and #3 (not #1) you can pay 4 basically equal and on time installments to get the result.

So, paying an installment in December or January doesn't fit UNLESS;
5. You can apply withholding in the quarter it was withheld instead of averaging (your wife's wages seem to be all in the first `1/2 of the year). THEN pay a 4th quarter installment to even it out. You must file form 2210 to do this.

6. or, if your surge in income comes in the last quarter so that by preparing form 2210 Schedule AI you prove the installment wasn't due earlier (use #5 with this approach because it doesn't look like this fits your situation on the basis of when you earned your taxable income).

In other words, you can possibly avoid a penalty by paying a instlalment in December, but it might not eliminate all penalties. You may have a 3rd quarter underpayment. Possibly you can have YOUR employer withhold some extra in December if you guess a little short now, but you have $1,000 (or 10%) of flexibility. Always better to use withholding than paying any installments.


ed
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Thanks to you both for your help.

I just quickly went the turbo tax route and as a result have another question.

Turbo tax is suggesting
WIFE: Married - 3 Personal Allowances - 0 extra withheld
ME: Single - 5 Personal Allowances - 0 extra withheld

We have only one child and are both under 65 etc. So we only have 3 exemptions on our actual taxes. Can we legally claim 5 on my W-4??????


Yes. Withholding allowances on the W-4 are not the same as exemptions on the 1040.

Second question: If in Dec we add up all of our withholdings and find out that it is less that the actual tax owed for 2007 can we send an extra payment to the IRS to make up the difference and ensure that we will not have a penalty????

As long as you have paid in at least 90% of your tax liability or (and?) are within $1000 of that amount, you can wait until 4/15 to make the final payment.

Ira
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I would appreciate a copy of the spreadsheet.
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