New Grads..How many allowances do you claim on W-4?

[STAR3URY]

Hi Guys,

I am a new grad pharmacist. I started working as of September. I tried looking up the IRS withholding calculator but It started asking me for #'s from the previous tax year. Since I am making different amount of money than I did last year I can't use that calculator to figure out how many allowances I should put for my W-4 form. Currently on my W-4 I have 0 allowances listed. Should I change this to "1"? Because I read if you are single and have only 1 job than that is 1 allowance.

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[type b pharmD]

Hi Guys,

I am a new grad pharmacist. I started working as of September. I tried looking up the IRS withholding calculator but It started asking me for #'s from the previous tax year. Since I am making different amount of money than I did last year I can't use that calculator to figure out how many allowances I should put for my W-4 form. Currently on my W-4 I have 0 allowances listed. Should I change this to "1"? Because I read if you are single and have only 1 job than that is 1 allowance.

Way more than that. Starting in september , if you haven't worked yet that year, set at least 4 . Your annual income is going to be <50k but with one allowance you are being taxed on 100k+

 

[STAR3URY]

Will I get a return at the end? I'm so confused with how to properly set this up so that I don't get screwed

 

[Protongenic]

Regardless of how many allowances you are claiming, any extra taxes should be refunded to you.

In a nutshell, if you claim more, then you pay less tax throughout the year, and you get less tax refund back at the end of the year. In fact, depending on how many you claim and how much tax you pay, you may get negative tax returned to you at the end of the year (read: you owe monies to IRS).

On the other hand, if you claim less, you pay more tax, but you may also get a bigger tax return.

Basically in simpler terms, it pretty much comes down to this: do you want one big check once a year or do you want to see a little bit of that check every month (or however often you get paid)?

 

[Sparda29]

Last year I claimed zero allowances until like November when I changed it to 1. I ended up getting a little more than $6k back.

 

[pezdispenser]

I worked it out for a friend using a spreadsheet of all her paychecks.

June & July: grad intern at 50% of RPh rate. 24 h/wk.
August onwards: Full RPh rate 40 h/wk.

8 Allowances

She will still get around a $400 tax refund.

You will probably need around 12 Allowances to minimize your tax refund if you started in September.

 

[STAR3URY]

I worked it out for a friend using a spreadsheet of all her paychecks.

June & July: grad intern at 50% of RPh rate. 24 h/wk.
August onwards: Full RPh rate 40 h/wk.

8 Allowances

She will still get around a $400 tax refund.

You will probably need around 12 Allowances to minimize your tax refund if you started in September.

By how much should my taxes be decreased if I claim 12 allowances? right now Im at about 41% tax

 

[pezdispenser]

12 allowances decreases the taxes around $484 on a bi-weekly paycheck based on a $120k salary.

You can play around with changing the number of allowances and seeing its effect on taxes with this paycheck calculator:

http://www.paycheckcity.com/calculator/salary/

 

[MackandBlues]

and just an FYI if you are going to work any PRN on top of 40 hours per week, you need to have more taxes held. I moonlighted alot in residency and I ended up owing like $4k which really sucked.

 

[Lisochka]

Can I ask you too guys? I have a child and starting a new job. I was an Rph for one year already. How many allowances do I claim?

 

[Ackj]

Can I ask you too guys? I have a child and starting a new job. I was an Rph for one year already. How many allowances do I claim?

If you've been through a full year already, this thread doesn't really apply, since you're making the same amount of money year round. What the posters are referring to is how the withholdings get skewed when you have 6 months making like $15/hr and then suddenly you're making $50-60/hr.

Unless of course your new job has a dramatically different income than your current job, but I don't think that is very common from Rph -> Rph job changes.

 

[pezdispenser]

Can I ask you too guys? I have a child and starting a new job. I was an Rph for one year already. How many allowances do I claim?

Follow the worksheet on the front of the W-4 form. It will probably be 3-4 allowances.

 

[Lisochka]

Follow the worksheet on the front of the W-4 form. It will probably be 3-4 allowances.

Thank you so much 🙂

 

[pezdispenser]

I worked it out for a friend using a spreadsheet of all her paychecks.

June & July: grad intern at 50% of RPh rate. 24 h/wk.
August onwards: Full RPh rate 40 h/wk.

8 Allowances

She will still get around a $400 tax refund.

So I did the 2013 tax return of this person.
Ended up grossing $54k and had $7,400 in taxes withheld with 8 allowances.

Deducted some moving expenses
$2,500 student loan interest
$6,100 standard deduction
$3,900 personal exemption
Got $1,600 Lifetime Learning Credit

Total tax ended up being $4,700 (effective tax rate 8.7% of gross income)
So still ended up with a $2,700 tax refund. Could have gone even higher with the W-4 allowances.

 

[mustang sally]

Just a reminder to new pharmacists, if you have your allowances set higher for your first year, don't forget to change them back down at the beginning of the next year if you don't want to run the risk of owing money.

I forgot to do this and ended up owing on my 2013 taxes, but I'm looking at it as I got a free loan from the government so it's all good.

 

[ArtificallyFlavored]

Just a reminder to new pharmacists, if you have your allowances set higher for your first year, don't forget to change them back down at the beginning of the next year if you don't want to run the risk of owing money.

I forgot to do this and ended up owing on my 2013 taxes, but I'm looking at it as I got a free loan from the government so it's all good.

What are the penalties for setting so many allowances that you end up owing money? If there are no consequences from the employer or IRS, why doesn't everybody do this? I would rather owe money than get a refund.

 

[npage148]

you do have to pay (usually small) amounts of underpayment penalty if you are significantly underpaying. The whole interest free loan from the gov't line of thought is silly. How much are you really making in interest off that loan over the course of the year minus penalties. The only time I see underpaying as a decent idea is if you need the extra money now and will be in a better spot financially come tax time

 

[Ackj]

The only time I see underpaying as a decent idea is if you need the extra money now and will be in a better spot financially come tax time

That wouldn't be bad for end of P4 year and first few RPh paychecks. I was pretty broke with all the licensing fees and board exams, and had pretty much zero emergency fund or savings. After 5 months of RPh income I imagine many would be in a better financial spot than they were after graduating. Exception of course, is if they have ridiculous loans that come off of grace, and for whatever reason don't use IBR.

 

[queenietess]

2

 

[BenJammin]

The whole interest free loan from the gov't line of thought is silly.

Oh good lord, this is why you aren't in the tax business. You voluntarily give the government $x and you aren't grateful that they're actually giving you a refund? The whole point is to not give them money they could take in the first place. If you paid $10,000 in taxes and got $1,000 in refunds then why didn't you just pay them $9,000 to begin with?

 

[PharmDstudent]

It totally depends on how many chores I've done... hehehehehe

 

[Dr Wario]

For people worrying about underpayment penalties starting their first year as a pharmacist, don't sweat it too much. The reason being is that the IRS imposes underpayment penalties based on two criteria. First is withholding under 90% of total tax due, the second is withholding at least 100% (with a few exceptions) of the total tax due in the previous year.

For my personal example, I set exemptions to 25 my first year out of school so that my income tax withholding would be $0. I was able to do this because, as a student during 100% of the previous year, I was able to structure things so that my income tax liability came out to $0 that year. I took the amount I would have had withheld in tax and was able to put it into an interesting bearing account until I finally had to pay the entire tax bill at once on April 15th of the next year. This move only netted me about $200 in interest, but it was a hell of a lot of fun figuring out a way to screw the government a little bit. Subsequently, I did a similar thing the next year because although I was generating a full pharmacist salary, the previous year's tax bill was only about half.

Now of course, I would never recommend this scheme to anyone that isn't very financially savvy and disciplined, however, I did want to show that it is not necessary to fret about underpayment penalty the first year out of pharmacy school in most cases.

Edited to add: These federal income tax underpayment rules apply in tax year 2013, the code is subject to (and often does) change, please always make decisions on the current, prevailing tax law and always consult a tax professional if you have any uncertainty. END CYA Statment

 

[Dred Pirate]

Last year I claimed zero allowances until like November when I changed it to 1. I ended up getting a little more than $6k back.

That sucks, you fave the feds an interest free loan for the year. The BS part is that if you owed the feds that much you would get hit with a penalty. I timed it perfect this year - I wrote a check for $50 - and will mail it April 13.

 

[Dred Pirate]

So I did the 2013 tax return of this person.
Ended up grossing $54k and had $7,400 in taxes withheld with 8 allowances.

Deducted some moving expenses
$2,500 student loan interest
$6,100 standard deduction
$3,900 personal exemption
Got $1,600 Lifetime Learning Credit

Total tax ended up being $4,700 (effective tax rate 8.7% of gross income)
So still ended up with a $2,700 tax refund. Could have gone even higher with the W-4 allowances.

don't get used that that student loan interest deduction - after one year you will make to much - trust me, I know. still 73k if effing student loans to pay off, but hey, it is at 1.5% interest.

 

[N974]

Rate Single Filers Married
10% $0 to $8,925 $0 to $17,850
15% $8,925 to $36,250 $17,850 to $72,500
25% $36,250 to $87,850 $72,500 to $146,400
28% $87,850 to $183,250 $146,400 to $223,050
33% $183,250 to $398,350 $223,050 to $398,350
35% $398,350 to $400,000 $398,350 to $450,000
39.6% $400,000 and up $450,000 and up

Here are your tax rates for FEDERAL INCOME taxes, this is not SS, medicare, or state which don't have anything to do with withholding. Most pharmacists will be in the 25 or 28% bracket, which is ONLY the rate for the last dollar you made. Most married people will pay between 10% and 15% of their total income in FEDERAL income tax. Single people 15-20% total. All depending on write offs (home owner? kids? etc).

Watch your paystub, and look at YTD totals. 6 months in if you made 50k and they have withheld 5K in federal tax (10%), you are probably going to have to pay. If they withheld 10K then you are giving them too much, back off the allowances then (claim a bigger number).

Biggest tip, at the end of the year, AFTER you taxes are done, see exactly how much total tax you paid and divide that from your TOTAL pay for the year, that will give you a percent number. Know that number and compare it year to year. It will help guide your future decisions, 401k contributions, real estate etc. For example, maxing out your 401k AND then contributing to an IRA may drop your taxable income to a level where you could still write off student loan interest for example.

 

[mustang sally]

you do have to pay (usually small) amounts of underpayment penalty if you are significantly underpaying. The whole interest free loan from the gov't line of thought is silly. How much are you really making in interest off that loan over the course of the year minus penalties. The only time I see underpaying as a decent idea is if you need the extra money now and will be in a better spot financially come tax time

I don't know and it doesn't really matter. It happened accidentally, so I'm putting a positive spin on it (since I came out ahead).

 

[Ackj]

So are the testing fees for Naplex, MPJE, licensing fees to the board, etc. deductible? I'm gathering up all my documents now. If so, that's another good $7-800 right there.

 

[pezdispenser]

So are the testing fees for Naplex, MPJE, licensing fees to the board, etc. deductible? I'm gathering up all my documents now. If so, that's another good $7-800 right there.

You can only deduct the amount of those expenses that exceeds 2% of your Adjusted Gross Income, and then you would have to itemize deductions, so the total of all your deductions would have to exceed the standard deduction ($6,100 for singles).