How much money should we withhold from our paychecks?

Question

We make roughly 65K combined. We filed married jointly last year, and plan to continue. We are also first-time home buyers this year, as we just purchased a home this month!

My husband claims "0" deductions. I have not adjusted mine to reflect our marriage. I was claiming "Head of Household" while I was single. And I had "3" deductions total.

I am no longer in school. He is out of school. We have no student loans because we both enrolled in payment plans monthly. We have no children or other relatives to claim as dependents.

We received about $600 in refund last year. I want to have as little refund as possible. I would prefer to 'break even" and have the extra money in our check all year.

Also, his income fluctuates. He is paid a small hourly wage but makes lots from commission. I receive a salary and it is set, with the ability to work a few hours of overtime a week, but normally no more than 1-2 hours.

I spoke with a CPA and they suggested he remain at "0", and I adjust my withholding to "1" and both file as "married", instead of "married but withold at a single higher rate".

Any suggestions?

Thanks in advance!

Answer 1

Unless your income or exemptions or deductions have changed a lot from last year, I'd leave it as it is - that worked pretty well last year.

The house will probably change things.  For this year, you will very likely be eligible for the up to $7500 credit for first time home buyers so might end up with a pretty huge refund.  That's actually an interest free loan that you'll pay back on your taxes for 15 years at $500 a year. Next year. the house might give you enough deductions to itemize.  I'd still wait to change anything until you see how that works out.

Your CPA is being very conservative telling you to change your W-4. You wouldn't owe if you follow that advice, but might end up with a bigger refund.  If you had two kids as dependents last year but not this year, then follow his or her advice.

Answer 2

I would leave your W-4 as is for this year, then review your situation in January 2009.  The sites www.irs.gov and www.paycheckcity.com have great W-4 calculators to help you decide for 2009. By the way, I hope that on your taxes for 2007 you did not file as "Head of Household", since that is only for single parents typically, and you stated that you have no children.  Was "Head of Household" only for your W-4, and not your actual tax filing?  You should have filed "Single" last year, Filing "Head of Household" would give you a larger refund but would be illegal since you had no dependents.  Personally, I would not claim the first time buyer's credit, but I don't know if you have to claim it or not.  You get the $7500 credit up front, then $500 less as a refund for 15 years.  Check out www.irs.gov for that one.  ** to add:  OK, at least you filed correctly last year.  If you want, you can get copies of your latest paystubs, for both of you, and add up the total federal withheld to date.  Then fill out a fast 1040 form with your basic numbers so far this year, and see if you are ahead or behind with withholdings so far, you can just use a 2008 form not a big deal, just an estimate. Throw in your property taxes and interest for mortgage too if you use Schedule A normally to itemize, if not just take the standard deduction of $10,700 for a married couple, plus two $3400 exemptions (one for each of you) and subtract those numbers ($18,500?  Doing this in my head fast!!) from your total income, look at the tax tables at www.irs.gov (just search tax tables).  It is really easy to do.  I did this for our situation in July and realized we paid out way too much so far for taxes so increased our allowances on our W-4 a lot (Different situation, I am a stay at home mom, and we have 4 children).  I'll check back if you run those numbers later on, I imagine you need to look up your paperwork.  Actually, if you type your total incomes combined, I will look it up for you on the tax tables (what you should owe about).  Each increase in allowances on your W-4 for each person wihholds about $500 per year less in total federal tax, but since it is nearly September the year is 2/3 over.

Answer 3

Go to the IRS web site: www.irs.gov. There is a tax withholding calculator (http://www.irs.gov/individuals/page/0,,i... you can plug in your income/deductions and get a close estimate on what you will owe.  From there you can adjust your withholding to reflect what you will need.  You might ask your Payroll person at work to help.