Should I raise my W4 allowances from 0 to 1?

Question

This month i get a 5% raise and will be making about $1100 more a year. I currently have 0 allowances and I got a Federal tax return of about $1300 and about $200 from the State of California.

Would it be good to raise it to 1? I know i will get less for Federal and might have to pay for State but wouldn't that mean I can take home more a month? I will start making about $42000 starting July 08.

Answer 1

The calculations will take all increases into account, even if you are in a higher income bracket and owe more or less in state taxes.  Since you are already getting a refund, no change is necessary.  However, you could consider, and I would, change the allowances to 1 to get more take home pay and since over half the year is over you should take home more each month and still get a refund.  Then next year you should reevaluate your W-4 based on your 2008 tax return.

Answer 2

Yes it does, you'll take more home per month. You should just about break even at the end of the year. If you look forward to the tax return I'd keep it at 0. Some people consider it kind of a savings account.

Answer 3

You don't have to adjust your withholding due to a raise.  The withholding will adjust automatically.

Answer 4

The raise doesn't affect your W4.

If you can save the extra $100 and not spend it, it might be worth it to change to Single-1.

Answer 5

Go ahead and make that change.  You will probably still get a refund, although a smaller one, at least from the feds.