How much do I claim on my W-4 (Single, New Job)?

Question

I just started a new job with a higher pay. I am single (now) and claimed a 1. Ouch is all I have to say! My salary is $55K and I figured out from my first pay check that I will be paying $8700 in Federal taxes to the government each year. I would rather pay each month what I owe and invest it in a tax-deffered IRA. What should I claim in order to do so? I tried the IRS web site calculator and it did not help me very much and seemed inaccurate (their numbers did not match what is being witheld).

Are there any benefits to being "Married", dual-income, no kids? We are eventually getting married and would consider doing just the legal end of it-- if it saved us a substantial amount.

Thoughts??

Answer 1

I am married and we always claim 0 so that we don't end up owing money at the end. You can claim as many as you want, just be prepared to pay it all back at the end.
You do get a special tax credit if you are married filing jointly. I think it's like $1,000 or something. If you have kids it is also $1,000 per child.

Answer 2

There are many things that you need to consider before filing your W-4. Until you figure it out, claim single and zero dependents.

1. Are you getting married in 2007? If not, claim single.
2. Do you currently own a house? If so, what is your mortgage interest and property taxes?
3. How much do you expect to pay in state income taxes?
4. Can any of your benefits from work be taken out pre-tax like a 401(k), medical insurance, or a flexible spending account?
5. Are contributing to your 401(k)? If so, how much? At a minimum, you should contribute to get as much as your employer will match. In my opinion, you should contribute as much as you can to your 401(k) before you contribute a dime to an IRA because you can contribute 3x the amount of money to a 401(k) than an IRA.
6. When you file next year's taxes, are you looking to break even, owe some tax, or get a refund?

Since all of these factors affect what you can claim on your W-4, use Publication 15 as a better guide. Start at page 34 or 35. Here is a link:

http://www.irs.gov/pub/irs-pdf/p15.pdf

It will take some work, but you can get a good handle on it.

Based upon the information in Publication 15, each dependent that you claim will be equal to $3300 in planned deductions. For example, if you do not itemize your deductions or have any other deductions like an IRA, if you claim 3 on your W-4, you will owe a little bit of taxes becase the standard deduction and personal exemption would reduce your taxable income to $46,550 (55000-8450) while you would have had taxes taken out based upon $45,100 ($55000 - 9900).

Answer 3

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