HunterGreen

Hello

DH just started a new job and has to fill out a W4. He likes the big tax refunds but I do not (I hope the fact that I am not enthused about giving Uncle Sam an interest free loan each year will not affect my N400 in the future ).

According to the work sheet we have 5 allowances. Because I am not that much of a gambler, I say claim 4. DH is leaning towards 3.

I'd just like some opinions of others on this.... so fire away! Thanks.

Elaine

md95065

Overpaying taxes so that you get a refund is obviously a bad idea - after all, who wants to give an interest free loan to the US Treasury?

Ideally you want to end up owing the maximum amount possible without incurring any penalties for underpayment. Generally that means paying at least 90% of your taxes through withholding and estimated tax payments, although there are exceptions to that rule - see IRS Publication 17 for details.

In practice I usually try to aim to "get it about right" so that any payment or refund is small.

That having been said I have always found the worksheets for figuring out what to out on your W4 to be pretty useless ...

The best guide is just to look at the numbers from your previous tax returns and adjust accordingly. How many allowances did your husband have on his W4 at this previous job and how big was the resulting payment / refund at tax time? Assuming that you haven't acquired any other sources of income or had a significant change in your deductions that will probably indicate whether or not you should change the number of allowances.

Xebedee

If you can afford the allowances, claim 5. When the money comes to you, it'll be a nice extra.
If you figure out how much money you would make in interest over 12 months on the money you let them keep and compare that to the hassle of bookeeping, well.

As I said before, the IRS is absolutely the last bunch of scumbags you would want to have to owe.

Rete

Depends on the person and their ability to save and need for money up front and weekly/bi-weekly.

For myself, I claim 0 as does hubby and we have extra taken out for state tax because we have to pay a city tax that the company is unable to withhold.

I prefer to get a few hundred back each April simply because a few hundred would only be a few dollars more each paycheck in my pocket and the interest on that would be perhaps $2.50 annually if I were to deposit the full amount at one time and let it ride out for a year.

We use that money to rent our cottage in August for vacation. Works for us.

Now if you are talking thousands, then of course adjust your withholding accordingly.

HunterGreen

DH is quite stubborn, even when I did the math for him he keeps going "but I like the big return in the spring". Dude, put it in the savings account and take it out each spring. I *so* don't get that mind frame. And we are talking thousands here. If we paid taxes based on the allowances there'd be almost $400 a month more in his pay check, which compared to what he makes is quite a bit. I try not to sound annoyed about him 'in public', but it gets quite old to hear him bitching and moaning about bills every month, knowing this. Then again money wise he is a whiner, probably would be B&M'ing if he was a millionaire.

Thanks for the input!

HunterGreen

He never adjusted it after we got married... the allowances were still based on 'single'.
I know.
I tried.

Bill_S

I don't get it either. We never get a refund, we always owe something, but not enough to trigger a penalty. But this discussion comes up every year at tax time. Your DH is far from alone in wanting that big check in the spring. IMHO this is one of those "pick your battles" situations and unless you desperately need that money during the year, let this one go.

lapin_windstar

I'm mystified by people's enthusiasm to overpay. I get the feeling it's a combination of tax system being hopelessly complex, interest rates on savings accounts being abysmal, and Americans generally being very poor at saving money (compared to other countries).

paddingtongreen

Tell him to aim for break even on the W4 and have some money direct deposited into a savings account. Then, when you do your tax return, you can send any owed to the IRS from that account, and have the rest, plus interest to spend.

Longy

I think this is a big part of it, I don't think doing the taxes at the end of the year is that big a deal, but working out what you should withhold right now is beyond me.

We are buying a house at the moment, and I can work out roughly how much we should be withholding based on that alone, but AMT could come into the equation, and that is where I have no idea.

Seeing as they decided to change the threshold for 1997 in only Nov/Dec, I can't decide to assume they will do something similar this year which may mean we escape it or assume it will drop to the lower amount that it is currently set to in which case we will get hit.

And even then I can't figure out how much difference it will make because its a whole different calculation, so am thinking to just do 0 or 1 and see how we stand at the end of the year.

HunterGreen

Yeah, that's what I've been doing. Now with the new job though it's a good time to adjust it at least a little bit though, and he's fine with that... using 3 out of 5 allowances instead of 1 is at least half way there I guess, lol.

HunterGreen

That's what I'm thinking too with not wanting to go for the full 5... it's such a big change I kind of want to know where we stand first, the last thing we'd want it to underpay and get slapped with a penalty. I guess I don't really care if it's going to be 3 or 4, we can always adjust again next year (or any time really).

md95065

For some people paying too much tax and then getting a refund is a kind of enforced saving scheme - we all know that you *could* just have that extra money in your paycheck transferred into a savings account every month, but would you *really* do that or would you just spend it?

So, I guess one question to ask is - "What do you and your husband do with that big refund when it come in - do you save it or spend it?" - and, regardless of the answer, is that what you think you *should* be doing with the money?

If you changed your withholding and had more money each month what would you do with it?

Asking those questions and making sure that you and your husband agree on the answers might help you to either come to an agreement on what to do or better understand why you don't agree.

Rete

I thought you were a family of 3 so why in heaven's name would you want to claim 5? While I agree with you that he needs to adjust from 0 to a higher numerical number, I, personally, would prefer getting a few hundred back than having to pay a few hundred out.

NC Penguin

I would agree that aiming to get a large tax refund is silly. I'd rather that money was in my possession so I can put it in my account earning interest than have the IRS have it and just get it back later.

However, I don't understand the strategy of owing as much as possible without incurring underpayment penalties. Nobody likes to be hit with large bills so why set out to do this with one's tax return?