Tax question? Increasing my tax allowance number?

Question

I have started my first full time job a month ago but going over my package I've started seeing weird stuff.

So on the offer page it says: Your annualized based salary will be $60,000, minus applicable taxes. You will be paid $2307.69 on a bi weekly basis. but hold on a second:

If you divide 60000/12 that is $5000 per month and if you divide that to 2 again that is $2500 per 2 weeks ! so where is this $2307.69 coming from?

Beside that after tax deductions my first bi-weekly check was for $1,578.76, I claimed my W-4 as a single person. Since this is my first time dealing with this (taxes) I've heard that you can increase the number of your personal allowance. Actually my mother is a U.S citizen but she does not live here. So I wanted to put her under me as a dependent. My co-worker told me that you can increase my allowances to 3-4 to pay less taxes. Now, what happens if I set my allowances 3 or 4? what is the difference in my paycheck?

Thanks!

Answer 1

This is where the 2307.69 comes from (and it is correct by the way, this is how it's figured).....

Take the annual salary, divide by the number of work hours in a year, which is 2080 (52 weeks x 40 hours per week).

60,000 / 2080 = 28.84 (essentially this is your "hourly" equivalent pay).

$28.84 x two weeks (80 hours) = 2307.20 (a few cents off, but you get the picture).

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Edit - actually I overthought that...here's the much simpler way....

52 weeks in a year, paid every two weeks, means you get 26 paychecks.  60,000 / 26 = $2307.69 (ah, now that's exact)

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As far as figuring the effect of changing your allowances (yes, increasing your allowances will reduce the taxes taken out)....

Here's a good paycheck calculator...it should be pretty accurate.

http://www.paycheckcity.com/NetPayCalc/n...

Answer 2

  Your math is correct. But, your logic is flawed. You have omitted 4 entire weeks from the year. If you are paid bi-weekly there are usually 26 pay periods in a year. However, it is possible to have 27 in a year... 26*14= 364 that leaves an extra day and you also have to account for the leap years. So, after four years you have five extra days...meaning that about every 11 to 12 years you will have an extra pay check within a physical year.

  Ok, so much for the basic math assumptions.  Out of the 2307.69 they will withhold 7.65% for Social Security/Medicare...which amounts to $176.54  The federal tax on $2307.69 when claiming one  should be 382.67. So the total federal withholding and SS/MC would be 176.54+382.67 = 559.21. This leaves $169.72 unaccounted for...my guess is that is state and/or local taxes.

NOW to answer the last two questions. In your case a deduction will make a difference of $33.66 every paycheck (see Publication 15 on the IRS website (134.62 * .25 = 33.66)).

However, there are rules against not having enough withheld from your paycheck that more than likely will result in penalties and/or interest. The IRS also has a fairly new program that looks for people under withholding and when they find them they will require the employer to withhold at an even higher rate for at least 2 years.

Hope this helps.

  

Answer 3

In order to claim an exemption for your mother as a dependent, she cannot have more then $3400 gross income and you have to provide more than half of her support.  Be prepared to document that if audited.

In federal 25% marginal tax bracket each W-4 allowance represents $3500 of income, $875 annual tax, or $33.65 bi-weekly tax.

The W-4 allowances would typically be 2 if you have one job, or if your mom does qualify, plus 1 for her and 1 for head of household.

Answer 4

There are a couple of months when you'll end up with 3 paydays if you are paid biweekly.  You'll get 26 paychecks a year, 52 weeks in a year, divided by 2.  That comes to the $2307.69. Not weird at all.

If you can prove that you provide over half of your mother's support, and her gross income for the year is under $3500 (not just US income), you might be able to claim her as a dependent - if so, you'd probably be safe claiming 3 and maybe even 4 allowances without owing at tax time - I'd stick to 3.  Each additional allowance will give you around $33 per paycheck.

If you can't claim your mother as a dependent, then stick with one allowance, or two at most.  With 2, you might owe a little when you file your tax return.

Answer 5

Bi weekly is 14 days. One year /12/2 is not 14 days. If the month has 30 days, it is 15 days and if month has 31 days, it is 15.5 days.

If you single, claim 0 or 1 allowance. If you claim more allowances, then you employer will deduct less federal income tax. This is not same as paying income tax as per your tax return.

If your withholding is more than your tax as per tax return, you will get a refund. If your withholding is less than your tax as per tax return, you will pay the balance with interest and penalty.

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