The newest version of Form W4 is very confusing. I often hear people say they have $0 Federal tax taken from their pay checks, especially if they claim $2,000 or more for dependents. I know that it depends on wages earned, but if someone has 2 dependents and claims $4,000 but has $0 tax taken out of their pay, will they owe tax at the end of the year? Tax calculators don't really tell someone what they should claim so it seems like we are rolling the dice. Any suggestions on what to do or an explanation is welcome!
Hi Creed22,
Thanks for participating in today's event!
I agree with you: the new W-4 is very confusing!
It's hard to say whether the person in your question would owe taxes; as you mentioned, it would largely depend upon their wages, as well as their household's income.
I recommend using our W-4 calculator. After answering the questions, it will yield a results page. On this page, you'll be able to see what to input on the W-4. It also includes a slider that lets you see how any changes to the extra withholding would impact your estimated taxes for the year. Note that any changes made to a W-4 later in the year may have an unexpected result if left unchanged for the next year. So revisit it again every year to make sure that you're aligning your withholding with any changes to your tax story.
I hope this information is helpful!
Cheers,
Katie
Hello Creed22,
Thank you for your question!
As I understand your question, you are asking about the W4 form for federal withholding? Great question and I agree, the W4 form is confusing. I will help it make sense.
First, not everyone's tax situation is the same. Two households with 2 kids can have vey different tax situations based on income and deductions and credits.
Federal taxes and credits are based on 1) your income 2) the number and ages of your dependents. Different credits are available at different income levels. Some credits phase out with higher incomes or when dependents get older. This might be best explained with an example.
Based on TY 2022 information
Say you are single and have 2 dependents (children) ages 6 and 8. Your taxable income (after the standard deduction of $19,400 for HOH, head of household) is $24,000. You had $0 in federal withholding. In this example you will file HOH with 2 dependents. The tax owed on $24,000 would be $2590.
Now, you would also qualify for $5259 in Earned Income Credit and of $4000. So your total credits would be $9259 (adding both credits together). Since you owed $2590 in tax but had $9259 in credits, you would see a refund of $6669. If you did have withholding on your W2, you would also get credit and your refund could be higher.
Now, lets say your dependents are 16 and 17. The difference is the 17 year old would no longer qualify for the $2000 child tax credit. They now only qualify for the $500 other dependent tax credit. So, your refund would be adjusted.
Each tax situation is unique. Your individual tax situation should be looked at every year or so to make sure you are properly setup for the next tax season.
Another example: when your dependents are grown and out of the house, you will no longer qualify for any child tax credit or earned income credit. Hence, you better have enough withheld from your paycheck to cover any taxes owed.
So to answer your question about the W4, the answer is 'it depends'. It depends on your individual tax situation, if you like a large refund or like to break even. I'm going to attach a link to an article that I think will help. I always recommend to look at your paystubs and make sure your withholdings are proper. Also look at your state, if your state has taxes.
If by any chance you work more than one job, make sure you have a good amount of tax withheld from the second job.