I am married with one child. and we both work. My question is - what is the proper or correct exemptions/dependents/allowances to claim on our W4 with our employers?

[disqus1515]

We both work full time and don't care about a refund. Would the proper or correct answer be for each of our W4 claiming of allowances/dependents/exemptions - Myself claiming Married with 2 Dependents (myself and my daughter) with my employer and my wife claiming Married with 1 Dependent (for herself) with her employer?

[SweetieJean]

It depends somewhat upon your respective incomes.  Many married couples both claim "Married but withhold at the higher Single rate" and zero exemptions.

https://turbotax.intuit.com/tax-tools/calculators/w4/

[disqus1515]

We file jointly and always will. We have been doing Myself claiming Married with 2 Dependents (myself and my daughter) with my employer and my wife claiming Married with 1 Dependent (for herself) with her employer and we get a small refund each year. We dont want to change it unless we are doing claiming incorrectly. would this calculation be correct? is ok to claim oneself as a dependent?

[SweetieJean]

Unless either of your incomes has changed a lot, stick with what you have.

[Hal_Al]

There is no "official" correct way. That said, you are essentially doing it correctly, as evidenced by coming out almost even ("small refund")

[disqus1515]

So does the IRS audit, know, or care what you put on the W4 form?

[SweetieJean]

Not unless you are suntsantially underwithheld. See Lock in Letters here:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/taxtopics/tc753.html">https://www.irs.gov/taxtopics/tc753.html</a>

[disqus1515]

ok, so if I get a small refund from the IRS of about $200, and usually pay the state about a $200 each year which is a wash; the IRS wont audit, know, or care what we put on the W4 forms?

[SweetieJean]

You are fine, so stop worrying.

[Carl]

The IRS doesn't care what you claim on your W-4. Besides, they never see the W-4. The IRS only cares what you claim on your tax return when you file it, and that you pay your taxes if owed, at the time you file your tax return.
Most couples, if their only source of income is W-2 income, will claim on the W-4 at least 1 less than they are entitled to. This increases their withholding from each paycheck.  That way, they are practically guaranteed a refund when they file at tax time.
If enough taxes are not withheld from each paycheck, it could result in you owing at tax time. If the amount you owe is substantial, then the IRS will assess an underpayment penalty for not having enough withheld from your paycheck throughout the year.

[disqus1515]

so Carl. ok, so if I get a small refund from the IRS of about $200 for federal taxes, and usually pay the state about a $200 each year which is a wash, would that be considered underpayment?

[Carl]

Not to the IRS. The IRS doesn't care about your state taxes. You're mixing apples and ketchup from the IRS perspective. Generally, and depending on your income, if you owe more than $1000 to the IRS at the time you file your taxes, you didn't have high enough withholding on your paychecks. They'll assess a penalty. Note that $1000 is NOT a fixed figure. I pulled it out of thin air. That number depends on your overall household income.

[Hal_Al]

Actually $1000 is a fixed figure. If you owe less than $1000, the IRS will not assess a penalty*.  States have a similar fixed figure but they are not all the same. Most use $500 or more. So, you should be safe owing $200. Even if you're not, the penalty is minuscule.

*even if you owe more than $1000, there are exceptions to the rule.

[disqus1515]

How can you find out the fixed figure minumum amount of each state is? I am in Utah.

[Hal_Al]

I'm not from Utah. Having looked at instructions for many states, I thought I could find a quick answer at their web site or form instructions. I didn't. The good news is it appears Utah does not assess an underpayment penalty at all (unless you pay after the filing date). See  <a rel="nofollow" target="_blank" href="https://secure.utah.gov/taxpic/pic/index.html">https://secure.utah.gov/taxpic/pic/index.html</a>