What do I need to file on my W4 for next year?

Question

I grossed almost $45,000 this year and my wage was $15.55 an hour. Next year I will be making $18.00 and am going to go ahead and assume I will break $50,000. I am filing 0 with no dependents and taking out an additonal $20 a paycheck. Is this going to help me at least break even on my taxes or do I need to take out more? Thanks in advance

I am currently putting 5% into my 401k and planning on increasing it to 7%. How much will that help as well?

Answer 1

When your wage rate changes, your withholding amount automatically adjusts along with it. If you are claiming zero exemptions on your W-4 now, there should be no need to revise it.

Answer 2

From what you say here, you are significantly OVER withholding! The withholding tables are based upon your income so you will always have enough tax withheld if you follow the instructions on Form W-4.

As a general rule of thumb, if you claim Single and 0 and have no other income or deductions to contend with you'll be looking at a $900 - $1,000 refund at tax time. If you claim Single and 1, you'll be looking at about half that. If you claim Single and 2 you will be just about breaking even at filing time, normally within $100 either way of even money with the IRS.

In your situation, if you are paid weekly, you're looking at a refund of around $1,900 - $2,100. If you're paid bi-weekly, around $1,400 - $1,600. That's WAY too large of an interest-free loan to be making to the government, IMHO! A MUCH smarter way to proceed would be to jack your withholding allowances to 3 and drop the extra $20 and dump the extra pay into a savings account or money-market account. You'll be looking at a tax bill of around $500 or so at filing time but you'll have that money on hand and since it's less than $1,000 there will be no penalties or interest for underpayment of tax. AND you'll have whatever interest the money earned through the year to boot!

For some strange reason people get paralytic about having a small bill to pay at filing time. Your total tax liability isn't any different if you owe a few hundred, just the payment time differs. When you owe a bit, you have had the benefit of YOUR money all year and are NOT giving the government an interest-free loan for upwards of 15 months!

Answer 3

Dont change your exemptions but start putting as much of your wage increase as you can into a 401k or IRA to reduce the tax load.

Answer 4

Wait until you file your 2007 return. If you get a HUGE refund, and don't want to give the government an interest free loan, you might want to change it.