What is the best way to minimize how much is taken out for taxes?

Question

I am a nurse and make a decent amt. of money. I feel like I'm being ripped off with taxes. Every paycheck Uncle Sam collects $722.78. I live with my common law husband who has recently been laid off. We have two children. Can I claim him as a dependent?. I have been all year. I file as single with 3 allowances. Is this correct?. I want to make sure that I'm not giving up money I could use.

Answer 1

If your state recognizes your relationship as a common law marriage, then you are married for tax purposes also, and can file a joint return and are not allowed to file as single or as head of household. Not all states recognize common law marriages, and those that do often have a number of rules you have to follow - you might be able to simplify your situation by just getting a license and going through the formalities. But if your state does recognize common law marriages, and you meet all of their rules (which is usually much more than just living together for a certain length of time) then you are legally married.

That said - if you are married and can file a joint return for the year, then you'll get an exemption for each of you, and one for each of the children assuming they meet the rules to be claimed (you don't say how old they are, so I can only assume that they're still of an age where you can claim them). For a child under 17, you'd also get a child tax credit which depending on your income could allow you to take an extra 2 allowances for each eligible child (see line G on the personal allowances worksheet of the W-4).

If your common law marriage is NOT recognized by your state, then you could not claim your common law husband as a dependent if his income for 2007 was over $3400, and if he was just laid off recently, it probably was so you couldn't claim him.

You could claim the kids though in any case as long as they meet the requirements, so you might be able to take additional W-4 allowances due to the child tax credit if they're under 17.

Note that if you take more allowances on your W-4, you'll get more money in each paycheck, but any refund will be reduced by exactly that total. You don't get more money one way or the other, the only thing that changes is when you get it.

Answer 2

After you reviewed the information that Charlie gave you, also review IRS Publication 15. That is the publication used by employers to determine your Federal Tax withholding on your paycheck. Start at page 35.

What I suggest that you do next will take some work.

1. Are you allowed to file a joint tax return based upon Charlie's information?

2. Prepare a mock tax return based your projected income and expenses (use last year's tax filings as a guide).

3. Compare the amount of tax that would be due this year with what has been withheld.

4. If you already have a refund coming based upon your information, you should not need to have any more tax withheld. If you will owe tax, how much is it?

5. Adjust your W-4 accordingly. According to the formula in Publication 15, you can claim one exemption for every $3400 in deductions. However, since there are only 3 months left in the year, you can mulitply that number by 4 to adjust it for the year. You will need to talk to someone in your payroll department to see when the change will take effect.

6. THIS IS IMPORTANT. Mark your calendar for December 1, 2007. You will need to readjust your W-4 again. Using the same rules as above, you will need to fill out a new W-4 again. This time do not multiply the result by 4. This will adjust your tax withholding for 2008. If you forget to do this, then you won't have enough taxes taken out for 2008.

Answer 3

What you want to do sounds wise considering your circumstance. Keep in mind that changing your withholding will reduce the refund you might be used to getting. Getting a refund is exactly that, you have paid too much in and the government is returning your money. Its no different than cash register ringing up a $25 sale and getting change back when you pay with a $100 bill.

If a common law marriage is valid in your state, you can file married jointly. http://www.irs.gov/pub/irs-pdf/p501.pdf See pub 501 p 5 left hand column. If you are not considered married then it is doubtful you can claim him as a dependant but check table 5 on page 10 see tests to be a qualifying relative. In 2007 if his income is higher than $3,400 you won't be able to claim him. But if you file jointly you get an exemption and he gets an exemption. I hope this makes sense.

After you have made the filing status and dependency determinations fill out a new W4 form and submit it to your employer. http://www.irs.gov/pub/irs-pdf/fw4.pdf Make sure you read the instructions and do the worksheets. You will need your latest pay stub and your husbands last pay stub, if you need help call 800-829-1040 pick the options for a tax law question and tell the screener you need help filing out the W4.

Answer 4

In addition to the info given by others, if a common law marriage is not recognized by your state, be very careful about claiming him as a dependent. Our state prohibits claiming anyone as a dependent that would "violate local law". Living together in our non-common law state(NC) would violate local law. They will recognize a common law marriage if it was entered into legally in another state.