How Much to Claim to Not Owe Taxes?
According to Kiplinger.com, over 75 percent of all taxpayers received a refund that averaged just over $2,900 in 2010. If you are among the number of Americans who had to write a check and send it in with your tax return, you may be looking for a way to avoid paying next tax season. You can adjust your income tax withholding at any time, to have the correct amount taken out each week.
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One Allowance per Family Member
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If it is early in the year, and your tax situation is fairly straightforward, you can probably claim one allowance per family member in the household on your W-4 form. This works well if you have mainly income from one or more jobs, with minimal self-employment or interest income. If two people in the family work, or you have multiple jobs, you should split up the amount of allowances between both wage earners or both jobs. For example, if you have four people in the household and your spouse works, you can claim two allowances, and your spouse can claim two.
Calculate Your Projected Tax Liability
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You can arrive at a quick estimate of your tax liability for the year by filling out a tax form from the previous year using your projected numbers for the current year. You can also use Worksheet 1 from IRS Publication 919, which will help you project your taxable income and the income tax you will owe.
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How Much Withholding?
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You will need to calculate how much has been withheld so far for the year from your paycheck in federal taxes, and then project how much will be withheld at year's end. Take the total amount of federal tax withholding for the year to date and divide that amount by the number of paychecks that you have had so far. The result is your average weekly withholding. Multiply that number by 52 to calculate your projected withholding for the year.
Adjust the Withholding Amount
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If your projected tax withholding is less than your projected tax liability, you will need to have more income tax withheld to avoid owing taxes. Figure out how much you will underpay at your present withholding levels by subtracting your projected withholding from your projected income tax liability. Divide this amount by the number of paychecks that you have remaining for the year. The result is the amount of additional income tax you will need to have withheld each week. Enter that on line 6 of a new W-4 form and give it to your employer. Make sure that you claim the same number of allowances on your new W-4 that you claimed on the previous W-4 form.
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