e3geek

I am looking at a few net pay calculators on the internet and they all ask me to enter number of federal allowances. I have tried to google it and came across a formula like

"Roughly, a withholding allowance represents your total tax deductions divided by the personal exemption amount. This results in a ratio, and this ratio is how many withholding allowances you should claim."

Is that close to accurate? How many federal/state allowances do I get with 110K salary in Chicago if filing married jointly with no kids?

RICH

HaHaHaHa. Good luck. Let me know.

Speedwell

This is the form used to calculate number of federal allowances on a job in the US: http://www.irs.gov/pub/irs-pdf/fw4.pdf The number of allowances you claim on the worksheet may be different from the number you use on your tax return.

Since a 110K salary (assuming dollars) is less than the 130K threshold where number of deductions doesn't accurately track tax withholding anymore, you should be OK using the W-4 calculation in your back-of-the-envelope calculations.

If you have had some paychecks in your 110K job and US tax has been withheld, you should multiply the withheld amount by whatever you need to to get a yearly withholding figure you can compare against this publication http://www.irs.gov/publications/p505/index.html to see whether the amount being taken out is appropriate for you.

Jscl

Married filing jointly and and not much other information yet... use 2 if your spouse doesn't work, 1 if they do. (If you have two incomes you usually don't withhold enough if you both use two allowances.)

Part way through the year, when you know more about your income and deductions, you can get an idea of whether you're withholding enough. If you're not then you can just submit another W4 reducing your allowance by one, or you can add a lump sum figure to your withholding (e.g. a flat $50 per paycheck, for example).

e3geek

How would I know my tax mid way through tge year? Why dont I know that now?

md95065

For most people it is just too much trouble to attempt to calculate their tax liability completely accurately in advance (and, if you have any income from investments etc that may arrive at various times throughout the year in as-yet-unknown amounts it is probably almost impossible).

The US tax system does not aim to have deducted the "right" amount of tax every pay period - broadly speaking it just requires that you pay at least 90% of whatever your tax bill ultimately ends up being through salary withholding and quarterly estimated tax payments (it is, of course, much more complicated than that, but for our purposes just assume that when you come to file your taxes you should find that you have already paid at least 90% of what you owe).

The amount that is withheld from your salary is determined by the information that you provide on the W4 form that your employer will ask you to complete. It isn't directly related to how much tax you will actually end up needing to pay in any simple way - it just determines how much tax will be withheld.

So, you start out with an estimate of what your withholding probably should be at the start of the year and then perhaps check once or twice during the year that it still seems to be about right, making adjustments if necessary.

Duncan Roberts

You've only scratched the surface of tax, be prepared for a shock.

e3geek

So this is what I was talking about:

http://taxes.about.com/od/paymentopt...ithholding.htm

Example: Mary is a single parent, qualifies as head of household, and has one dependent. Let's further assume that her deductions will consist of the standard deduction and two personal exemptions (one for herself and one for her child. The math for her withholding allowances would look like this (all figures below are for the 2013 tax year):

Standard deduction: 8,950
Personal exemptions: 2 x 3,900 = 7,800
Total tax deductions: 8,950 + 7,800 = 16,750
Deductions divided by personal exemption amount: 16,750 / 3,900 = 4.295
In this example, Mary would claim Single and four withholding allowances on her W-4 Form. (It's advisable to round down the ratio to avoid having too little tax withheld from your paycheck.) In other words, Mary would check the Single box on line 3 of the Form W-4 and would write "4" on line 5 of the Form W-4 where it asks for "Total number of allowances you are claiming."

This is for 2013, In 2014 the personal exemption amount is 3950 and standard deduction for someone like me is 12400. According to this formula my allowances would be 5. Does anyone agree with this?

Hotscot

What will you be paying in sales tax and gas tax throughout the year?

I guess my point is...what's your point in doing this? Is there some reason you need an exact number.

Or are you trying to calculate accurately what disposable income that you may have for example.

There are so many variables involved that you won't get an exact figure anyway but if you want feedback on whether 110K is appropriate for your area you might get good feedback.

Jscl

I think this might overestimate your allowances, and the one thing you don't want is to be owing over $1000 come tax time and therefore (depending on other circumstances) subject to penalties.

I would just follow the simple instructions on the Worksheet on the W-4 form, at least for your first year.
1 allowance for yourself
1 allowance for your spouse unless they work, then 0
So a total of 2 or 1.

Remember if you have other income, e.g. interest, sale of stock, that generates income but has no tax withheld then you'll have tax due on those in April, and it's useful to have a buffer in your withholding.

Next year you can make changes if you need them. Unless you have special circumstances 2 or 1 aren't going to be far off.

e3geek

That is the point. My employer advised to write 2 for me and my wife. But I think I can do more accurate calculations here. Smart me

Jscl

Or not smart you, if it ends up meaning you're subject to penalties in April...

It might work out, depending on your circumstances, but you might end up paying for it. Whatever method you use (that isn't standard) I'd most definitely round down! Good luck.

Pulaski

FIFY