Should I declare a '1' or '0' on my W-4 if I am living with my parents?

Question

I'm a college student studying engineering with a fairly well paying job for my age (roughly 3k monthly salaried and 401K). I live with my parents and they declare me as a dependant.

Should I file a 1 or a 0 on the W-4? Which will get me more cash in the long run?

At what income level do I need to start declaring a '1' while still living with my parents? When I move out do I need to file a '1' regardless of income level?

Answer 1

The higher the number the less tax the employer will deduct from your pay. This can get complicated however.

Be careful, there is a penalty if you do not pay your taxes on a timely basis. If you owe more than $1,000 in tax for the year (and your adjusted gross income for the prior year is less than $150,000), you are required to pay at least 90% of your current year taxes on a quarterly basis. Taxes withheld from your salary are considered paid ratably over the year. Let's say your tax liability for the year was $10,000. You need to have paid $9,000 quarterly. $2,250 must be paid by each of April 15, June 15th, Sept 15th and the following January 15th. Normally these taxes are covered by withholding but if you claim too many exemptions the withholding may not cover the requirements in whcih case you would be required to file estimated taxes and send in checks (with IRS form 1040ES) by the above due dates.
Continuing the example, if your withholding for the year is $7,000 you will need to pay an additional $500 on each of the above dates to avoid a penalty for underpayment of estimated taxes.

You do not want to claim too few exemptions however because if you get a refund from the government when you file your tax return you are giving the government an interest free loan. I always prefer to owe money on April 15th.

Answer 2

You'll get the same amount of cash in the long run, and will pay the same total tax - that doesn't depend on what you have withheld. If you have more withheld than you owe, you'd get a refund - if you don't have enough withheld, you'd owe when you file.

Claim zero on your W-4 if your parents claim you as a dependent. But warning: if you are providing more than half of your own support, then they can't claim you even if you still live with them - and with an income around $36K, unless you're socking it all away into savings, sounds like you might be providing over half of your own support. If you're paying for your own schooling, that's considered part of your support.

If you move out or if your parents can't claim you, then you could file 1 on your W-4 since you would then have an exemption for yourself.

Answer 3

If you parent's are claiming you as a dependent, you will not be able to claim for yourself. This will adversly affect your refund amount also because the IRS will see you as an dependent not an independent person out on there own.
When you move out you should defineltely claim a least 1. Especially if you do not have children or or other tax reliefs.

Answer 4

Either way you go about it, you'll end up with the same amount of money for the most part. The issue at hand is whether you want more money per check now (claim 1) or get a bigger tax refund at the end of the year (claim 0).