Step 3 of W-4 in CA

[mmendez09]

Hi, 

My original W-4 with my current employer is from 2020 and I only claimed our 2 children as dependents on Step 3.  However for 2021 and 2022, I ended up barely paying any federal taxes via my paychecks, so we have owed thousands of dollars after filing.  I want to avoid that for 2023 and want to pay more federal taxes throughout the year, but I am confused if I am just not supposed to claim our 2 children even if that's what the W-4 form asks for?

Thank you!

[Adria L]

Hi @mmendez09 ,

There is an income limit for claiming the Child Tax Credit. This may be why you ended up owing. Although, since I do not know your income, there may have been other factors. However, this link from IRS is helpful.

https://www.irs.gov/credits-deductions/individuals/child-tax-credit#:~:text=You%20qualify%20for%20th....

If you are entitled to the Child Tax Credit for each child, this amounts to about $2000 each. The tax credit decreases the amount of  your tax liability. This may be why you did not have any federal tax deducted.

This TurboTax Calculator is helpful to verify whether the amounts being deducted or not deducted are reasonable:

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

In addition, you can request additional withholding on line 4(c).

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[mmendez09]

How would I determine how much extra to withhold from each paycheck on line 4 (c)?

Thank you!

[Adria L]

Go through the W4 Calculator, https://turbotax.intuit.com/tax-tools/calculators/w4/

The final amount of tax liability divided by the amount of pay periods, will determine the minimum amount the employer should withhold. If your federal income tax withholding on your paycheck is less than this, increase the withholding by the difference.

This article is also helpful:

https://turbotax.intuit.com/tax-tips/irs-tax-forms/form-w-4-and-your-take-home-pay/L4VSEhPez

If you still need assistance, please let us know. 

Thank you.

[Esther M]

Hello mmendez09,

It's not clear from your question whether you filed jointly with your wife and whether your wife also have a W2 or not. As a general rule, you should review your W4 every new year especially if you received wage increases during the previous year. Assuming your wife also works and gets W2 every year, both of you should complete Step 2 of the W4 and check the box. On Step 3, both of you should definitely include your children. Complete Step 4 if it applies to you. I'd advise both of you to complete Step 4(c) and enter an additional amount to be withheld from every payment for both of you. Be sure this is an amount you can both comfortably afford without strain. 

You may also use our Tax Tools to calculate how much withholding would be sufficient for both of you to avoid paying taxes at the end of the year. Please see the link here   W-4 Calculator  Here are additional helpful tax tools  More Tax Tools 

Thank you