Tax Exemptions/dependants (sp?)-Can this person actually claim 6??

Question

A couple of days ago, my inept manager at work blurted out that she only pays $1.75 per paycheck to state taxes (we live in michigan), I questioned her on this and she said it was because she claims 6 dependants. I asked her how she can claim 6, because the only people in her house are her 2 kids and herself.

She stated that she claim herself and the 2 kids as 3, then also claims herself as "head of household" and also gets 2 more dependant deductions because she is low-income.

Does this even seem right to you? Is this legal to do??

Answer 1

Yes, its possible. One has to do the calculation on the W-4 worksheet to have any idea and that depends on her personal circumstances. Being "low-income" does not qualify you for any extra dependents on its own, although the calculation may work out that way. As others have noted, she is risking it if she does not actually qualify for all the reliefs that six withholding allowances give her.

Personally, I think arbitrarily claiming one extra for head of household is a bit excessive, on top of two extra for "low-income".

She will get a shock if it turns out to be incorrect. She runs the risk of penalties and interest when she does her tax return. If the IRS can prove she claimed withholding allowances without a good reason she can be penalized.

If you are thinking of following suit, please take this opportunity to educate yourself. Go to irs.gov and look for the link to W-4 in the top left hand corner. Fill it in for yourself and see what it comes out at. The idea is that you should end up getting a small refund. If you get a large refund, all you are doing is giving an interest-free loan to the government. If you are married, have children or are a dependent you do have to consider all the worksheets and read all the instructions. If you don't you could end up having too little withheld and have to pay in April 2008.

Now is the best time to do this. That way you start off the year having the correct tax deducted.

Answer 2

You can claim as many exemptions as you want as long as you don't end up owing taxes. It's the only way you can lower your withholding tax throughout the year for tax exemptions you know you will be eligible to take on your tax return.

You co-worker knows that she has 3 "real" exemptions (herself and her two kids). She gets a tax break for being "head of household" so she claims another exemption. She also knows that she will still be in a low enough income bracket that she will be refunded most of the money withheld throughout the year, so she claims two more exemptions.

All this strategy does is give her more money spread out over the course of the year rather than allowing her to claim a big tax refund when she files her income tax return.

There is nothing illegal about doing this, however, if you end up owing taxes because of your padded W-4 deductions, you will have to pay the government the correct tax, plus interest and possibly penalties for the understatement.

Answer 3

I worked in the payroll department for years. Employees can claims any amount of dependents during the year, but when it comes down to the final wire that's there is counts.

Our payroll system was set up so any body claiming more than 6 would automadially trigger a report to the IRS. I would warn them before they would change their W-2, but I could not stop them. Some employees would carry 10 dependents during the year, and at the end of year they would owe money to the IRS.

This was their choice, and if they wanted to take a chance that they would not be audit.

There is a better way to brake even at the end of the year, instead of owing or waiting for your tax refund check. Next year in June go to the tax table, look under your true filing status. Go down the list to your gross amount bracket. Let say that you should have paid 500, and only 300 was deducted from your check. This tell you that you need to reduce the number of dependent that you are currently claiming. In reverse if they have deducted 500 instead of 300, increase the number of dependents.

The company that I worked for our payroll system give the employee the option to indicate a percentage vs #of dependents.
Same principle, see what percentage of taxes you should have paid in by June. If is comes out to 25%, add 2 more % to the that. So you would have payroll to deduct 27% for federal taxes from each check. At the end of the year you will receive or owe less than $100.00.

I used the percentage method for years, and it worked for me.

Answer 4

She can claim as many as she can get away with. she will end up paying the same state tax in total for the year. If she claims 6 then she will get less of a refund at the end of the year then if she claimed 3. All in all the total tax paid for the entire year will be the same. More people should do this. Why have the government hold on to your money the entire year and then give it back to you at the end of the year in the form of a tax refund.

Answer 5

For Federal income tax:
You don't claim ANY dependents/exemptions on the W-4. You claim 'withholding allowances'. The number you claim should be the number that results in withholding closest to your actual tax liability.

Some states are more strict on their versions of the W-4. The Michigan form (MI-W4) states you cannot claim more exemptions from withholding than the number of exemptions you can claim on the income tax return. This appears to be the same number as she can claim on her Federal return. If that is the case, she should be claiming 3. MI-W4 forms are only reported to the state if 9 or more exemptions are claimed.

Answer 6

if she's been doing this..and hasn't been audited then..she is doing it right..
those taxes when filed have 2 or 3 separate people do each one..
or read them for errors and the 3rd then is the one with the approval stamp..
so if she isn't audited and doing it..then fine..
don't think she is calling it right though..one of those must be an "equivalent to married exemption"..not sure what the other ones are...unless they are allowing something for the children and it goes to the children..like a sposal support..
havn't done taxes in years...
one she is low income..and probably the only break she gets all year...that and the "Boxing Day Specials"..