Filling out the W-4 for incoming interns?

[changeofheart77]

I am trying to minimize my monthly withholding tax as I expect to get tax deductions due to lifetime education credit. Any advice how to do this if you're single with 0 dependents? Does anyone know if we get classified in the 40K tax bracket vs. the 20K bracket for the 6mos we're working this year?

Also, are Step 3 or licensing fees tax-deductible?

Thanks.

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[Venus21pam]

That's a good question. I'm curious about that too.
I'm married and will be filing jointly and my husband has almost no income (he's a student) and we should get a major tax brake d/t his tuition expenses.
I guess I should just check of the box that says our income won't exceed a certain amount for the year ( I think it varies by state...) - am I right?

 

[scubamd]

You'll be in the lower tax bracket your intern year because it's based on how much you made - not how much you would have made if you had worked all year.

If I remember correctly (and I just filled this out last night), the lifetime education credit maxes out at $10K. Also, some medical schools inexplicably charge tuition in December of your 4th year rather than waiting until January, meaning the credit wouldn't be applicable. Check with your school to make sure.

The licensing and step 3 fees fall under the broader category of work expenses, which actually has a pretty high threshold before it kicks in. Those two particular costs by themselves are almost certainly not enough to be deductible, but if you combine it with other costs from work (like buying textbooks), then you might cross that threshold.

 

[Trailblazer77]

Just to clarify about the Lifetime Learning Credit:
The Lifetime Learning Credit amount is equal to 20% of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim is $2,000. (Exception: if you were a "Gulf Zone" student - then it's up to $4000.) See Pub 970 for more info... http://www.irs.gov/pub/irs-pdf/p970.pdf

As ScubaMD said, check with your school about how they report your tuition. They send out Form 1098-T by January 31 each year and should be able to tell you what it will say.

About W-4 withholding allowances: The more allowances you claim on your W-4, the less income tax will be withheld. The most tax is withheld if you claim zero allowances.

IF you can claim the Lifetime Learning Credit you might not owe any tax this year. I'm "guessing" from your info that you'll probably be able to claim from 3-5 withholding allowances. Use these worksheets in Publication 919 to figure out how many allowances you can claim or use the IRS Witholding Calculator below: http://www.irs.gov/pub/irs-pdf/p919.pdf

Tips: Don't forget to review your withholding at the beginning of 2008 (or anytime there is a change in your tax situation). Don't underpay or you might owe penalties and interest. There is also a penalty for supplying false information on Form W-4.


IRS Withholding Calculator
http://www.irs.gov/individuals/article/0,,id=96196,00.html

How to Adjust Your Withholding
http://www.bankrate.com/brm/itax/tips/20010124a.asp

Bankrate Tax Basics: Withholding, etc
http://www.bankrate.com/brm/green/taxes/basicsone-intro.asp?caret=41

By the way, don't forget about the Student Loan Interest Deduction if you paid interest on your loan.

 

[Mumpu]

My med school charged us in December so no deductions there. You can expect a pretty sizeable refund after your intern year because you will make only about 25k and will be able to deduct student loan interest (up to $2500) plus other stuff you might do like IRA contributions, mortgage interest if your place is expensive enough to justify itemizing over the standard deduction, etc.

 

[dpmd]

You can expect a pretty sizeable refund after your intern year because you will make only about 25k and will be able to deduct student loan interest (up to $2500) plus other stuff you might do like IRA contributions, mortgage interest if your place is expensive enough to justify itemizing over the standard deduction, etc.

This is exactly what the OP is trying to avoid. Instead of giving a hefty interest free loan to the government, he/she is trying to minimize the amount taken out every month so he/she can decide what to do with it. This is the official publication from the IRS that tells you how to fill out the W-4 so you don't end up with a huge refund or a penalty for underwitholding (although, since part of the decision tree for determining whether to charge a penalty involves how much tax you had to pay the year prior, I think you would probably be ok if you underwithhold intern year)

 

[Mumpu]

There is a limit to how much you can minimize the withholdings, especially if you are single, with no children that you know of, and do not own your home. The intern year is "special" because you only work half the year -- with my current deductions, I will be about even (no refund, no money owed) next year with a full year's salary.