Payroll Tax Exemptions ($10 Question)

Your Advice - help answer readers' questions When it comes to how much money the government keeps out of your paycheck, there are often a lot of questions. You don’t want to be giving the government a free loan of your hard earned money, but at the same time, you don’t want to owe a lot of taxes when April 15 rolls around. This is a question from a reader regarding payroll tax exemptions:

Hi – this is a basic question but something I don’t fully understand, and couldn’t find an answer to on your site. We would like to increase my per-paycheck take home pay and want to better understand how many exemptions we can take on our W-2? I am married and we have two dependents, for a total family size of 4. Can you please advise on what we are allowed to take, and of course any other considerations you think would be crucial to understand? We are homeowners who are able to itemize our taxes to include our mortgage interest and tax payments. Thanks for your help, and keep up the great work. – M. T.

If you have an opinion you’d like to share to help this reader out, it could be worth $10 as this is part of our $10 comment series and would be greatly appreciated by all those curious about the same topic.

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5 Responses to Payroll Tax Exemptions ($10 Question)

  1. Minimum Wage says:

    You can certainly take the number of exemptions you’re going to take on your tax return, e.g. if you are single with two kids, you can claim 3 exemptions for tax withholding.

    When I was young and had two jobs, I took 2 exemptions for withholding. Because a second job pushed many workers into a higher tax bracket, they were allowed the extra withholding exemption to avoid being overwithheld.

    Since your W-4 form stays with your employer, the IRS (usually) doesn’t much care how many withholding exemptions you use.

    BUT you do have to be careful. There is a lot of fraud involving Earned Income Tax Credit (workers falsely claim nonexistent kids to reduce their withholding and to get the tax credit), so the IRS does look closer at these workers. Also, you have to have paid in least 100 percent of the tax you paid last year, OR 90 percent of the tax you owe for this year (on your (next) April 15 tax return), or else you will also owe a tax penalty for not paying enough during the year.

  2. melwrc says:

    There is an additional worksheet that goes with the W4 that takes into account your anticipated itemized exemptions. For your mortgage interest and taxes, last year’s records should be a close estimate assuming you didn’t move this year.

    This being the end of the year, I’d recommend estimating your deductions that you’ll be taking for your 2007 taxes this month. Then you can use the W4 worksheet and submit it to payroll for January 1. Do not overestimate your exemptions just to increase your take home pay. You could get popped with penalties doing that.

  3. reza says:

    The IRS has a calculator for this very purpose. Don’t say I never gave you nuthin’.,,id=96196,00.html

  4. pfadvice says:

    Thank you for taking the time to comment. I decided to offer all three of you the $10 prize – an email has been sent to each of you 🙂

  5. Scott says:

    You can claim as many dependants as you want. Just beware that next April when it is time to do your taxes, you better have some hefty write-offs to offset any “extra” dependents you may have claimed during the year.

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