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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Claiming nine dependents won't get you in trouble with IRS
Tax Talk

Calculating deductions on Form W-4

Dear Tax Talk:
I read an article on this Web site regarding taxes and calculating how much tax you are paying. According to the calculations for me and my tax bracket, it said I should be claiming nine dependents. Won't that get me into hot water with the IRS?
-- Lerene

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Dear Lerene,
Assuming you did everything right, you're eligible to claim the number of allowances that the Form W-4 calculator produces. You should double-check your math just to make certain that the results you obtained are correct.

An allowance on Form W-4 is the equivalent of approximately $3,500 in tax deductions or around $1,000 in tax credits. If you came up with nine allowances, you should be expecting to have around $31,000 in deductions or an equivalent amount in credits (such as credit for a child under age 17). Your deductions and credits may actually be lower if you had excess withholding in the year.

The calculator takes into account your current withholding tax to give you a more accurate result for the remainder of the year. For example, if you had one withholding allowance for half the year and expect to have the equivalent of five withholding allowances in deductions and credits for the entire year, then the calculator should have given you nine withholding allowances for the remaining half-year. If this is the case, you'll need to recalculate your withholding allowances in January 2008 to avoid having too little taken out of your paycheck for 2008.

Assuming you've looked at the results and they appear reasonable, you can provide a revised Form W-4 to your employer. Your employer should adjust your withholding on the next payroll that is practical.

It used to be that employers were required to forward to the IRS any Forms W-4 where an employee claimed more than 10 withholding allowances or claimed exempt and was not a student. Under new IRS regulations, that requirement on the part of employers has been eliminated. It is assumed the IRS was overwhelmed with W-4 forms and procedures relating to the disallowance of excess withholding allowances. If you're entitled to claim the allowances per the IRS withholding calculator, there is no reason that you should get in hot water.

Bankrate.com's corrections policy -- Posted: Dec. 11, 2007
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