How many dependents should a single mother in the 47,000 income range claim in order to maximize refund/income

Question

I am a single mother and by following the worksheet could claim 6 as head of household, etc. However, my sister says this could cause me to get little refund or even have to pay at the end of the year. I would like to get a substantial refund, but also minimize the amount taken out of each paycheck. Any advice on what I should claim? Thanks!

Answer 1

Your refund at the end of the year is a refund of overpayments you make through the year, plus maybe something like EIC if you are eligible.

Your tax liability is figured without any effect from what you had withheld. Then your withholding is subtracted from that, and you get a refund if there's anything left over.

Your question is basically saying "If I spent $10 at the grocery store, I want to pay with a $10 bill, but I still want to get plenty of change - how do I do that?" You don't. It's the same thing.

Answer 2

The number of exemptions that you claim on your W-4 form will have no bearing on the amount of tax that you end up paying. Your sister is right in that claiming more exemptions will reduce the amount of money that your employer withholds from your check each pay period. If this withholding is too low, you end up having to cut a check to the government on tax day. Too high and you end up giving the government an interest-free loan during the year, hence the refund.

There is really no way to maximize your refund while minimizing your withholding. It is a direct trade-off. Since your tax liability (the total amount that you owe for the year) does not change with your withholding, each dollar that you have withheld above and beyond your actual tax liability is a dollar that you will get back on your tax refund. Some people confuse claiming dependents on their tax return, which lowers the amount of tax that you pay, with claiming exemptions on their W-4, which reduces the amount of money withheld from your paycheck.

The best practice is to keep your withholding as low as possible, while keeping within the law, even if it means that you owe at the end of the tax year. If you take that same money that would have been withheld and put it into an interest bearing account, you will end up with more money than by letting the government hold on to it for free until you file your taxes.

The problem is that a lot of people don't have the discipline to save for taxes. If you fall in this category, the best practice would be to estimate the amount of taxes that you will owe this year and have your employer withhold just that amount from your paycheck.

Answer 3

You should fill out a W-4 with the actual number of dependents you have. If you were making about the same amount last year, but got a large refund, you should increase the number of dependents on your W-4 to reduce the size of your refund to a small amount.

In most instances, you don't want to have a large refund from the IRS because that is just a free loan to the government for the year and you don't earn any interest on that money. If you have trouble saving money and you want a large refund for that purpose, I have a suggestion. Setup an online savings account with one of the well known Internet banks. Here are three:

http://www.emigrantdirect.com/
http://home.ingdirect.com/
http://www.hsbcdirect.com/1/2/1/

Each one pays 4.5% to a little over 5% on savings with no minimum deposits. Additionally, you can set up automatic transfers from your checking account to the online savings account. Set up small transfers each pay day. Start with $10 or $25. Since the account isn't at your bank and you won't have a debit card to withdraw savings, it keeps the money just far enough away so you won't spend it on frivolous things. Yet, it is close enough that it can be transferred back to your checking account in just a couple of days. This method has helped a few friends of mine who had trouble saving money.

Good luck,

Answer 4

It does not matter how many you claim, in the end it will equal the same amount of taxes paid. So, you just need to decide when you want to have your money, a small amount each check or a big refund. I like lump sums, it is easier to save that way, nickel and diming is tougher.

If you are receiving any spousal support you want to keep that in mind, you have to pay income tax on it, but not child support.

Answer 5

Choose one or the other. You cannot have it both ways. Big paycheck OR big refund. Your choice.

Personally I HATE making an interest free loan to the government so I aim for a debt of a little less than $1,000. That way I avoid penalties and interest for underpayment regardless of what happens. If the money is in my hands I can make it make more money for me all year long. If I wind up with a refund, I've messed up somewhere.

Answer 6

People, she is a single mother, maybe she doesn't have time to work if her child is only young! Think before you judge, she might actually need these benefits unlike the other scroungers! Like other people have said, I think you have to pay tax before you can get tax credit.