w-4 & allowances

[dd128]

Hey guys, couldn't seem to find an uptodate answer for this, but what's the best number of allowances for a single intern with no dependents to shoot for on the W-4 form? I'm assuming I'll only have to pay taxes on half of my salary for next years tax purposes. Ideally I'd like to keep as much funds available as possible to pay off credit cards and such from interview season. The irs website calculator says 4. Is that too high? Much appreciated!

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[The White Coat Investor]

Hey guys, couldn't seem to find an uptodate answer for this, but what's the best number of allowances for a single intern with no dependents to shoot for on the W-4 form? I'm assuming I'll only have to pay taxes on half of my salary for next years tax purposes. Ideally I'd like to keep as much funds available as possible to pay off credit cards and such from interview season. The irs website calculator says 4. Is that too high? Much appreciated!

If you want as much funds as available to pay off your credit cards, get the IRS to loan you as much money as possible. So put your exemptions at 10 or 20 or something. Then you get almost all your taxes in your paycheck. Just be sure you pay enough to fall into the safe harbor provisions so you don't get penalties. Then, come next April 15th, you can write a huge check to the IRS for most of your year's taxes. Doesn't work most of the time, but should work for a new intern who paid little to no taxes last year. You basically just have to have as much as you paid in taxes last year to fall into the safe harbor provisions.

Or you can do what most people do and actually try to pay your taxes accurately as you go. If the IRS calculator says 4, that's probably what you should choose.

 

[dpmd]

I used the calculator and picked 15 K as the income (Don't know your expected pay, but keep in mind you will be two weeks behind on getting paid, plus if you pay health insurance premiums pre tax you will end up with less). The first number it gave (which was 5 exemptions) still got you a refund. It recommended 6 if you were ok with paying $35.

If 4 was what they recommended for the number you put in it won't be too many.

 

[dd128]

Yeah not sure what I did the first time, but re-calculated with a little over 20K and says I can do 7 with any refund or balance less than $25. I think I'd be ok with that...Maybe I'll do 6 to be safe. Oh how I have not been looking forward to dealing with all this adult stuff while in med school.

 

[pezdispenser]

I made myself a spreadsheet to automatically calculate my taxes on each paycheck and keep a running tally for the year. I can change my W-4 withholding allowances, add overtime or change my 401(k) contributions and it will automatically recalculate my taxes, and show if am due a refund or owe tax at the end of the year on my return.

You can go to paycheckcity.com to calculate the tax withheld on one paycheck.

The tax withholding tables are also in IRS Notice 1036.

The formula I made is:
=((([biweekly salary]-[insurance]-[401(k)])*26-3800*[W-4 allowances]-87800)*0.28+17442.50)/26

I use the annual formula (x26 then divide by 26 at the end) because that's just how my employer does it.

Substitute the "-87800)*0.28+17442.50" with the numbers out of IRS Notice 1036 for your tax bracket. The numbers are slightly different from the tax brackets used on your tax return because the tax withholding tables count the first W-4 allowance as the $5,950 standard deduction, and each allowance after that is a $3,800 exemption.

 

[pezdispenser]

The next part is figuring your annual tax as you do on your tax return. This varies a lot depending on your circumstances. But basically you have your:
salary - insurance - 401(k)
+interest
+dividends
+short term capital gains
-deductions
-exemptions
==========
taxable income

Work out the tax on this using the standard tax tables
+tax on long term capital gains

Now subtract the total taxes withheld from your paychecks. If the answer is positive, this is the amount you owe. If it is negative this is the amount you will be refunded.

Do not set your W-4 withholding allowances so high that you owe a massive amount more than $1,000 on your tax return, because you will be penalized by the IRS.

 

[MoiMoi]

Sorry for the necrobump but I was wondering if someone could explain why the allowance number is so high for the interns with income only in June-December. I'm also entering intern year soon. I got 6 allowances on that IRS calculator which I guess is reasonable based on this thread then I'll submit a new W-4 in January with 1 allowance if I want to pay accurately as I go. I just don't understand where the 6 allowances comes from.

 

[dpmd]

Sorry for the necrobump but I was wondering if someone could explain why the allowance number is so high for the interns with income only in June-December. I'm also entering intern year soon. I got 6 allowances on that IRS calculator which I guess is reasonable based on this thread then I'll submit a new W-4 in January with 1 allowance if I want to pay accurately as I go. I just don't understand where the 6 allowances comes from.

It has to do with how withholding is calculated so by earning little money for the year despite each check being for an amount that would be a better amount for the you would overpay by a lot of they didn't have a way to adjust it. Same goes for if you have a lot of deductions.