Taxpayer asks:
I hope you don’t think this is too simple a question but I’m a confused newbie. I started a new job this week. They asked me to fill out tax forms. One of them is a W-4. I didn’t know what to do with it and the HR person told me to just claim zero, so I did. Was that the right thing to do? I don’t know what it means. Should I hire an accountant?
Taxgirl says:
A form W-4 (downloads as a pdf) is the form that taxpayers use to tell their employers (not the IRS) how much federal income tax to withhold. Throughout the year, in addition to your FICA (Social Security and Medicare taxes), state and local taxes, your employer may withhold federal income tax. The amount withheld is applied towards your overall amount due come tax time. If you’ve withheld too little, you will owe, and depending on the amount, you may owe a penalty. If you’ve withheld too much, you’ll get a refund. Ideally, you’ll have withheld an amount that’s just right so that you’ll neither owe nor are due a refund (remember that refund is your money that you didn’t have the use of during the year).
The key to the form W-4 is to use the worksheets. The number that you enter on line 5 of the W-4 is taken from the worksheets either at the top of the form (for most taxpayers) or on page 2 of the form (for itemizers and multi-job earners). Follow the instructions and do the math – voila, there’s your number for withholding.
You do have some choices, though. If you don’t want to use that number for whatever reason, you can adjust it up or down. As a general rule, the higher the number, the less that your employer will withhold each pay period. Conversely, if you “claim zero” as your HR person advised, your employer will withhold the maximum amount allowable of federal income tax. Depending on your personal situation, this might be a good choice. But if you’re married, have kids, work more than one job or own a house, this might be too much withholding. You can check your withholding using the IRS withholding calculator.
If you’re taking out too much (or too little), don’t panic. You can adjust the amount by changing your form W-4, just submit a new one to your HR department. Some employers ask you to fill a new one out every year for this very reason. And you should always double-check your allowances on the W-4 if you have any major life changes including getting married or divorced, getting a raise or having kids.
As to the “should I hire an accountant?” piece, the answer to that is “I don’t know.” But here’s my take on the whole thing. It absolutely never hurts to know a couple of good professionals. I firmly believe that every taxpayer should have a good lawyer in mind, as well as a good accountant, even if you never use them– because when you do need one isn’t the best time to start looking. Get on a couple of newsletter mailing lists, make a couple of phone calls and get to know some folks (you can find tips for choosing a tax preparer here). Put them on your speed dial or in your Blackberry for just that situation when you have questions.
I hope that helps – and good luck with the new job!
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
Wow. That HR person needs to have their butt handed to them. First rule as an HR professional: Don’t give legal or accounting advice to employees. It is extremely unlikely you’re qualified to do either. For the W4, refer them to the worksheets, the instructions, or to an accountant.
Another consideration in claiming exemptions is to look at your most recent tax return. Did you have to write a check to the IRS? If so, you may be able to reduce the amount owed at tax time by reducing your exemptions.
I was just going to say what J.D. said! It is an absolute no-no for that HR person to give ANY advice on what should be put on a W-4! It is actually illegal to do it.
For years now, I have simply had withheld 100% of what I actually paid in income taxes the previous year. No tables, no counting dependants and alll that stuff. If you had 100% of your previous years actual taxes withheld, even if you end up owing $1000’s, no penalty applies. Warning, if your income is above a certain amount — check with an accountant or the regs — you may have to have 110% of the previous years actual taxes withheld. This is particularly valid in the yaer you retire and the next few years when you rincome varies significantly.
what would happend if you got married and your parents did not know, you are still living with them at home and the your parents fill out the tax papers out as single what would happen, or it wouldnt matter?