How many deductions should we list on our W-4 forms?

Question

My husband & I have two kids, my husband works and I stay home. Currently he has us down for 3 deductions, but we got almost $5000 back after taxes this year and would rather get it in our bank account during the year. We were guessing to go ahead and put down 5 - ? Any ideas?

Answer 1

You do not LIST anything on your W-4. You claim a number of ALLOWANCES. Don't guess. Use the IRS withholding calculator linked below. It will CALCULATE the correct number if you feed it accurate numbers. Without correct numbers, no one can give you a correct answer. That said, my GUESS would be 5 as well.

Edit: Judy mentioned the EIC. If that is a factor, the form for Advance EIC Payments is the W-5.

Answer 2

Five would be fine, for the four people, plus one extra because you aren't working at a paying job. Actually, if the kids are under 17 so you get a child tax credit for them, you could put more and still be OK - with five, you'd probably still have a pretty healthy refund at tax time, which would mean you're still paying in too much.

Download the W-4 form at irs.gov and fill out the worksheet at the beginning of it.

If you got EIC and that was part of the $5000, there is a way to get it spread out through the year in his paycheck rather than all at the end.

Answer 3

If you're getting a refund that large, you probably want to go even higher than that. Depending upon his gross income, a single exemption will only increase his annual take-home pay by around $850 on average. If you're in a 15% tax bracket, it's only worth $510 in take-home pay for 2007.

Go here for some handy estimators: http://www.paycheckcity.com and "slice and dice" the withholding exemptions to see what the impact of different exemption numbers would be. You want to get the weekly withholding down by around $85 per week or bi-weekly by double that amount. That will increase your take-home pay but still leave enough paid in that you won't have a debt at tax time.

If part of the reason is that you're getting the EITC it might be worth filing for advance EITC payments through his employer. He can file Form W-5 with his employer and receive some of the EITC in every paycheck. This doesn't cost the employer anything out of pocket as the amounts paid to you come off of their payroll tax deposits. Work that in conjunction with juggling the withholding exemptions to find the sweet spot that maximizes your take-home pay without going into the red at filing time.

Answer 4

Go ahead and put in for 5 allowances on your W4, and when that takes effect, run the numbers to see how much you will have for witholding for the year. The important thing is to have as much witheld as your tax liability was for 2006. You can probably put in for more than 5, but that will be a start.

Answer 5

Basically the correct answer would be 4, but if the kids are young and you are not interested in a large tax refund, 5 is doable,