If you work in America, you are required to pay taxes. Its the law. You may not like it, but its a requirement that all income that is made has to be reported to the IRS yearly. That income is also taxed.
A W-4 form is used to allow your employer to deduct the required taxes from your paycheck BEFORE your receive the income. This form tell your employer exactly how much you want to be taken from your checks to be paid to the IRS on your behalf.
The more allowances you claim, the less money your employer will withhold for taxes.
You are allowed one allowance for yourself., one for your spouse and one per EACH dependant you file on your tax return. Claiming additional allowances can cause problems when time to file if your allowances dont match your filing status. For example if you are single 0 or 1 are your only options.
Going Exempt
I have noticed an increasing popularity of w2 workers going exempt all year in order to “get all their money” during the year. Under the Trump Tax law dont be shocked if that method DOES NOT WORK FOR YOUR TAX SITUATION.
Lets talk about what going exempt really means. When you check the box to go exempt this does NOT mean that you are exempt from paying taxes. This means you are exempting from your employer witholding taxes on your behalf. YOU ARE STILL RESPONSIBLE FOR THE TAXES OWED FOR YOUR INCOME AT THE END OF THE YEAR.
If no taxes are taken out during the year and you have no credits or itemized expenses to offset the tax balance you will be in for a big shock on tax filing day. Going exempt means no tax payments are being made, therefore you will not qualify for a tax refund unless you are issued a refundable tax credit. What does this mean? If you go exempt you better be sure that you are qualified to get certain credits to offset the tax balance that you will owe.
Going exempt and completing your w4 varies from household to household no two people are alike. Remember that purposely filing exempt can cause tax balances and audits. Please consult with your tax professional if you need help. You can schedule a tax consultation with me and discuss this as well.
