||Ask the Dollar Diva
Don't kid around with the IRS
Dear Dollar Diva,
What is the penalty for claiming more dependents than you actually
have if you get caught by the IRS? I've heard that a lot of people
change their withholding allowances from their actual, say, two
dependents to 50.
You heard wrong. There is a 75 percent penalty on
any underpayment of taxes that is due to fraud. This keeps most
people from claiming more dependents than they actually have.
However, if you think you are having too much tax
withheld from your paycheck, you can legitimately reduce that amount
by increasing your withholding allowances on Form
W-4. If you plan to do any of the following, you might be able
to increase your withholding allowances and decrease your withholding
File as head of household
Claim a child or dependent care credit
Claim a child tax credit
Itemize, instead of taking the standard
Claim adjustments to income, such as alimony,
student loan interest or a deductible IRA
The instructions on Form W-4 will walk you through
the steps to come up with the correct withholding allowances for
your tax situation. Visit the IRS Web site to retrieve this form.
It's a good idea to go through the steps on the Form
W-4 and have your withholding adjusted for the following year if
you're not happy at tax time because:
Too much tax was withheld and you are receiving
a large refund, or
Not enough tax was withheld and you have
to pay a large tax bill.
-- Posted: Oct. 27, 1999