CPA's question for you.... I have a household of 4, been the only one earning a income and on taxes..?

Question

Claiming 4, well now wife is done with school and started working she is going to claim 4 (filing jointly). Should I now change mine back to only claim 1 since she is claiming 4?

Answer 1

Let's see if I can explain where it will make sense to you.

First, the tax tables are a bit screwy when you are married filing joint. When your are filing jointly you have two incomes to consider the tax tables do not account for this.

Not knowing your income makes it a bit harder...but, let's say that you have $20,000 in taxable income (this is after deductions) and your wife also has $20,000 taxable income.

The problem comes in because the tax rate changes at $15650 (2007 tax brackets). This means one of the incomes will be taxed starting at 15% from the first dollar.  The withholding brackets do not make this adjustment they still calculate the first $15,650 (taxable) at 10% for each person.

I do not know if that makes sense to you. But, to be vague...you will probably not have enough withholding and will need to adjust it in the future. The good news is if you pay in at least the amount of your tax liability for 2007 there will not be a penalty.

Hope this helps.

Answer 2

It depends on how much money she is going to make.  She should NOT claim 4 dependents.  Unless you both work for low wages if she does this you will end up owing money.  Not this year, because it is so late in the year, but next year.  What you need to do is fill out the worksheet that comes with the W4.  That will tell both of you how many dependents to claim.  Depending on your income it well may be that both of you should claim zero dependents.

Answer 3

You were claiming 4 allowances on W4 when you were only one working. Now you should both claim 4 in all. If you claim 4, your wife should claim 0.

About the allowances you should claim on W4: http://taxipay.blogspot.com/2008/02/fili...  

Answer 4

Without knowing full income information and other factors that might influence your tax liability, your best bet is to take advantage of the free calculators on the Internet.  Try the IRS's which promises to be more accurate than the worksheets that come with the W-4 (which you use to change/update/request your withholding).  The following link will take you to the homepage for the calculator which gives you information you will need to know before using the calculator.  A link at the bottom of the screen will take you to the calculator.

http://www.irs.gov/individuals/article/0...

Hope this helps!!

Answer 5

That's a tricky question.  WIthout knowing your combined incomes, anything I say is just a guess.  You seem to understand the way it all works, that the fewer dependents you claim, the more they take out of your pay.  My personal opinion is that one of you should claim 0 and the other one 2 or 3.  Sometimes the two incomes together can throw you into a higher tax bracket.  

While it's true that you don't get interest on the money you overpay in withholdings, it's still better than having to all of a sudden come up with a big chunk of money at tax time.