taxes

Caution using a tax withholding calculator

Judy O'ConnorDear Tax Talk,
I bought a new house on March 31, 2014. I will be paying interest of $21,000 in 2014 for the mortgage. My wife and I earn the same amount. Our total gross income for 2014 will be $165,000. The IRS federal tax withholding calculator showed me 41 allowances. Is it correct?!
-- Mahendra

Dear Mahendra,
No, the 41 allowances shown by the federal tax withholding calculator does not seem to be correct.

You need to go back and try again and be very careful on your input. If you make one error, then it throws everything off.

I used the calculator and input the very limited information you gave me regarding your income and the mortgage interest. The summary provided by the calculator came up with a projected total tax liability of $25,738. So that is your target number for the end of the year. Make sure you have your most recent pay stubs on hand and that you input only the federal taxes withheld. Do not include the Social Security or Medicare taxes withheld.

Your other option is to complete Form W-4, Employee's Withholding Allowance Certificate, using the work sheets provided on page 2. It is a bit more complicated than just filling in the amounts requested on the IRS withholding calculator but should get you to the same place on the amount of withholding allowances to claim.

Thanks for the question and congratulations on your new home.

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