Withholding allowances on W-4 form for intern year?

Discussion in 'Finance and Investment' started by Cardioverter, May 14, 2008.

  1. Cardioverter

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    I'm going to start my intern year in June like many people on SDN and I am trying to estimate how many withholding allowances to claim on my first W-4 form. I went to the IRS withholding calculator found below and filled it out assuming that I am only working for half of 2008 (June to December). So, for yearly income I put in half of my expected yearly PGY1 income and I put $2500 under adjustments for the education loan interest that I intend to pay off for that period. I changed the closest work date to May 1st and put zero for almost every other field. It suggested that I put 4 allowances and that I would pay just over $1000 in federal income tax for this 2008 period.

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

    Does this sound about right? 4 allowances?
     
  2. AndyFromMDTAXES

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    Since you'll only be working half a year this year, claiming 4 allowances sounds right. Just remember to file a new W-4 form with your employer in January, or else you might end up owing a lot of taxes the following year. As a rule of thumb, if you don't have much going on with your taxes, you'll get a refund by claiming Single - 0 and will come close to breaking even on your federal taxes by claiming Single - 1.

    Here are some other tax breaks you might be eligible for as a first-year doctor:

    1. The lifetime learning credit - equal to 20% of any tuitionand fees paid during the calendar year. Hopefully you paid for your final semester's tuition in 2008.

    2. Moving expenses - if you moved more than 50 miles in connection with the start of your internship, you can deduct the amount you spent to move your household items and to travel there - even if you don't "itemize".


    Good luck with your internship!!
     
  3. ice_23

    ice_23 Economics Monster
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    Andy,

    Thanks for the useful post. I have a question about the lifetime learning credit. Does payment and flight for Step2 and Step2CK (board examinations required to become licensed) fall under that credit? Also, if we spent money for interviews, where does that money fall?

    Thank you in advance for your help.

    -Ice
     
  4. AndyFromMDTAXES

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    Yes, the Lifetime Learning Credit can be a great tax break for you the first year you work. Remember, a tax credit is a dollar for dollar reduction in the taxes you owe, so this tax credit could increase your tax refund by $1,000 next winter.

    Qualified expenses for the Lifetime Learning Credit are generally limited to tuition and fees required for enrollment at an eligible educational institution. Check out http://www.irs.gov/pub/irs-pdf/f8863.pdf for more info.
     
  5. randomedstudent

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    The Lifetime Learning Credit has a max of $2000 (20% of $10,000) - I would be willing to bet that you will be far over that max without factoring in any Step 2 stuff.
     
  6. AndyFromMDTAXES

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    Oops.

    Sorry about that. The Lifetime Learning Credit is equal to 20% of the first $10k spent for tuition and fees during the calendar year. So the savings is up to $2,000.

    Thanks for pointing out this error in my previous post.
     
  7. Cardioverter

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    Thanks for the help!

    I considered the lifetime learning credit, but my idiotic school charges the spring semester tuition way back in October of 2007.
     
  8. ice_23

    ice_23 Economics Monster
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    Actually, because my school has us pay for tuition in december of the year before we start internship, none of our tuition qualifies. As a result, I'm nowhere near $10,000 to max out the 20 percent. Hence the question about licensing exams that are required for graduation taken in the year of your internship.

    Thanks to all who helped, I'm going to check out that link.

    -Ice
     
  9. AndyFromMDTAXES

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    Hi Ice,

    The rules are pretty specific, and say that allowable expenses for the purpose of calculating the Lifetime Learning Credit include tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Fees other than for tuition are included only if they must be paid to the institution as a condition of enrollment or attendance.

    So based on that language, I don't think that the cost of your board exams count.

    However, books, supplies and equipment count if they are required to be purchased from the educational institution as part of the course of study.

    Let's keep digging, Ice, and hopefully we can make sure that you max out this tax break this year.
     
  10. mshheaddoc

    mshheaddoc Howdy
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    Wouldn't you suggest holding off on the moving expenses until their first full year of pay? That is what I decided because since they will probably only make say $20K that first year of taxes (July - Dec) the moving expenses won't really make much a ding at all in your deductions.
     
  11. AndyFromMDTAXES

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    Great point. You are correct that moving expenses are deductible in the year that they are paid.

    However, if someone moves during June or July one year, it would be difficult to hold off paying the moving expenses until January of the following year.
     

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