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H&r Block 2010

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H&r Block 2010

H&r block 2010 1. H&r block 2010   Tax Withholding for 2014 Table of Contents Introduction Useful Items - You may want to see: Salaries and WagesDetermining Amount of Tax Withheld Using Form W-4 Completing Form W-4 and Worksheets Getting the Right Amount of Tax Withheld Rules Your Employer Must Follow Exemption From Withholding Supplemental Wages Penalties Tips Taxable Fringe BenefitsSpecial rule. H&r block 2010 Exceptions. H&r block 2010 Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. H&r block 2010 Identical wagers. H&r block 2010 Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. H&r block 2010 Underreported interest or dividends. H&r block 2010 Introduction This chapter discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. H&r block 2010 This chapter explains in detail the rules for withholding tax from each of these types of income. H&r block 2010 The discussion of salaries and wages includes an explanation of how to complete Form W-4. H&r block 2010 This chapter also covers backup withholding on interest, dividends, and other payments. H&r block 2010 Useful Items - You may want to see: Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request See chapter 5 of this publication for information about getting these publications and forms. H&r block 2010 Salaries and Wages Income tax is withheld from the pay of most employees. H&r block 2010 Your pay includes your regular pay, bonuses, commissions, and vacation allowances. H&r block 2010 It also includes reimbursements and other expense allowances paid under a nonaccountable plan. H&r block 2010 See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. H&r block 2010 If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. H&r block 2010 This is explained under Exemption From Withholding , later. H&r block 2010 You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. H&r block 2010 If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2. H&r block 2010 Military retirees. H&r block 2010   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. H&r block 2010 Household workers. H&r block 2010   If you are a household worker, you can ask your employer to withhold income tax from your pay. H&r block 2010 A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. H&r block 2010   Tax is withheld only if you want it withheld and your employer agrees to withhold it. H&r block 2010 If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. H&r block 2010 Farmworkers. H&r block 2010   Generally, income tax is withheld from your cash wages for work on a farm unless your employer both: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. H&r block 2010 Differential wage payments. H&r block 2010   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. H&r block 2010 Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. H&r block 2010 The wages and withholding will be reported on Form W-2, Wage and Tax Statement. H&r block 2010 Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. H&r block 2010 The amount you earn in each payroll period. H&r block 2010 The information you give your employer on Form W-4. H&r block 2010 Form W-4 includes four types of information that your employer will use to figure your withholding. H&r block 2010 Whether to withhold at the single rate or at the lower married rate. H&r block 2010 How many withholding allowances you claim (each allowance reduces the amount withheld). H&r block 2010 Whether you want an additional amount withheld. H&r block 2010 Whether you are claiming an exemption from withholding in 2014. H&r block 2010 See Exemption From Withholding , later. H&r block 2010 Note. H&r block 2010 You must specify a filing status and a number of withholding allowances on Form W-4. H&r block 2010 You cannot specify only a dollar amount of withholding. H&r block 2010 New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. H&r block 2010 Your employer should have copies of the form. H&r block 2010 If you need to change the information later, you must fill out a new form. H&r block 2010 If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. H&r block 2010 You may be able to avoid overwithholding if your employer agrees to use the part-year method. H&r block 2010 See Part-Year Method , later, for more information. H&r block 2010 Employee also receiving pension income. H&r block 2010   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. H&r block 2010 However, you can choose to split your withholding allowances between your pension and job in any manner. H&r block 2010 Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. H&r block 2010 When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. H&r block 2010 If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. H&r block 2010 See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. H&r block 2010 Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. H&r block 2010 See Table 1-1 for examples of personal and financial changes you should consider. H&r block 2010 Table 1-1. H&r block 2010 Personal and Financial Changes Factor Examples Lifestyle change Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement Filing chapter 11 bankruptcy Wage income You or your spouse start or stop working, or start or stop a second job Change in the amount of taxable income not subject to withholding Interest income Dividends Capital gains Self-employment income IRA (including certain Roth  IRA) distributions Change in the amount of adjustments to income IRA deduction Student loan interest deduction Alimony expense Change in the amount of itemized deductions or tax credits Medical expenses Taxes Interest expense Gifts to charity Job expenses Dependent care expenses Education credit Child tax credit Earned income credit If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method , explained later. H&r block 2010 Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. H&r block 2010 If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. H&r block 2010 You can get a blank Form W-4 from your employer or print the form from IRS. H&r block 2010 gov. H&r block 2010 You should try to have your withholding match your actual tax liability. H&r block 2010 If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. H&r block 2010 If too much tax is withheld, you will lose the use of that money until you get your refund. H&r block 2010 Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. H&r block 2010 See Table 1-1 for examples. H&r block 2010 Note. H&r block 2010 You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax. H&r block 2010 When Should You Check Your Withholding? The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. H&r block 2010 You should check your withholding when any of the following situations occur. H&r block 2010 You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. H&r block 2010 You prepare your 2013 tax return and get a: Big refund, or Balance due that is: More than you can comfortably pay, or Subject to a penalty. H&r block 2010 There are changes in your life or financial situation that affect your tax liability. H&r block 2010 See Table 1-1. H&r block 2010 There are changes in the tax law that affect your tax liability. H&r block 2010 How Do You Check Your Withholding? You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. H&r block 2010 You can also use the IRS Withholding calculator at www. H&r block 2010 irs. H&r block 2010 gov/individuals. H&r block 2010 If you use the worksheets and tables in this publication, follow these steps. H&r block 2010 Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. H&r block 2010 Fill out Worksheet 1-7 to project your total federal withholding for 2014 and compare that with your projected tax liability from Worksheet 1-5. H&r block 2010 If you are not having enough tax withheld, line 6 of Worksheet 1-7 will show you how much more to have withheld each payday. H&r block 2010 For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding? If line 5 of Worksheet 1-7 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday. H&r block 2010 How Do You Increase Your Withholding? There are two ways to increase your withholding. H&r block 2010 You can: Decrease the number of allowances you claim on Form W-4, or Enter an additional amount that you want withheld from each paycheck on Form W-4. H&r block 2010 Requesting an additional amount withheld. H&r block 2010   You can request that an additional amount be withheld from each paycheck by following these steps. H&r block 2010 Complete Worksheets 1-5 and 1-7. H&r block 2010 Complete a new Form W-4 if the amount on Worksheet 1-7, line 5: Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or Would cause you to pay a penalty when you file your tax return for 2014. H&r block 2010 Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. H&r block 2010 This is the number of allowances you entered on the last Form W-4 you gave your employer. H&r block 2010 Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. H&r block 2010 Give your newly completed Form W-4 to your employer. H&r block 2010   If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year. H&r block 2010 Example. H&r block 2010 Early in 2014, Steve Miller used Worksheets 1-5, 1-6, and 1-7 to project his 2014 tax liability ($4,316) and his withholding for the year ($3,516). H&r block 2010 Steve's tax will be underwithheld by $800 ($4,316 − $3,516). H&r block 2010 His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. H&r block 2010 Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. H&r block 2010 Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on the form as the additional amount to be withheld from his pay each payday. H&r block 2010 He gives the completed form to his employer. H&r block 2010 What if I have more than one job or my spouse also has a job?   You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. H&r block 2010 If this is the case, you can increase your withholding for one or more of the jobs. H&r block 2010   You can apply the amount on Worksheet 1-7, line 5, to only one job or divide it between the jobs any way you wish. H&r block 2010 For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2014 for that job. H&r block 2010 This will give you the additional amount to enter on the Form W-4 you will file for that job. H&r block 2010 You need to give your employer a new Form W-4 for each job for which you are changing your withholding. H&r block 2010 Example. H&r block 2010 Meg Green works in a store and earns $46,000 a year. H&r block 2010 Her husband, John, works full-time in manufacturing and earns $68,000 a year. H&r block 2010 In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. H&r block 2010 They expect to file a joint income tax return. H&r block 2010 Meg and John complete Worksheets 1-5, 1-6, and 1-7. H&r block 2010 Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. H&r block 2010 They can divide the $4,459 any way they want. H&r block 2010 They can enter an additional amount on either of their Forms W-4, or divide it between them. H&r block 2010 They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4. H&r block 2010 Both claim the same number of allowances as before. H&r block 2010 How Do You Decrease Your Withholding? If your completed Worksheets 1-5 and 1-7 show that you may have more tax withheld than your projected tax liability for 2014, you may be able to decrease your withholding. H&r block 2010 There are two ways to do this. H&r block 2010 You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. H&r block 2010 You can claim only the number of allowances to which you are entitled. H&r block 2010 To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. H&r block 2010 Increasing the number of allowances. H&r block 2010   Figure and increase the number of withholding allowances you can claim as follows. H&r block 2010 On a new Form W-4, complete the Personal Allowances Worksheet. H&r block 2010 If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. H&r block 2010 If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. H&r block 2010 If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. H&r block 2010 If the number of allowances you can claim on Form W-4, is different from the number you already are claiming, give the newly completed Form W-4 to your employer. H&r block 2010 Converting Credits to Withholding Allowances Table 1-2 , later, shows many of the tax credits you may be able to use to decrease your withholding. H&r block 2010 The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. H&r block 2010 Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. H&r block 2010 Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. H&r block 2010 Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. H&r block 2010 If you take the child and dependent care credit into account on Worksheet 1-8, enter -0- on line F of the Personal Allowances Worksheet. H&r block 2010 If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. H&r block 2010 Example. H&r block 2010 Brett and Alyssa Davis are married and expect to file a joint return for 2014. H&r block 2010 Their expected taxable income from all sources is $68,000. H&r block 2010 They expect to have $15,900 of itemized deductions. H&r block 2010 Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. H&r block 2010 The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. H&r block 2010 Line 1, expected child and dependent care credit—$960. H&r block 2010 Line 9, expected adoption credit—$1,500. H&r block 2010 Line 10, total estimated tax credits—$2,460. H&r block 2010 Line 11. H&r block 2010 Their combined total income from all sources, $68,000, falls between $42,001 and $98,000 on the table for married filing jointly or qualifying widow(er). H&r block 2010 The number to the right of this range is 6. H&r block 2010 7. H&r block 2010 Line 12, multiply line 10 by line 11—$16,482. H&r block 2010 Then the Davis' complete the Form W-4 worksheets. H&r block 2010 Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H. H&r block 2010 They take the result on line 12 of Worksheet 1-8, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets. H&r block 2010 When Will Your New Form W-4 Go Into Effect? If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. H&r block 2010 If the change is for next year, your new Form W-4 will not take effect until next year. H&r block 2010 Retirees Returning to the Workforce When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). H&r block 2010 However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. H&r block 2010 You completed either form based on your projected income at that time. H&r block 2010 Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income. H&r block 2010 The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. H&r block 2010 Start off with the Personal Allowances Worksheet. H&r block 2010 Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet. H&r block 2010 The third worksheet is the most important for this situation. H&r block 2010 Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. H&r block 2010 If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck. H&r block 2010 Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. H&r block 2010 It is your decision how to divide up your withholding allowances between these sources of income. H&r block 2010 For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills. H&r block 2010 ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. H&r block 2010 There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances. H&r block 2010 Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. H&r block 2010 Contact your pension provider and your employer's payroll department. H&r block 2010 And remember, this is not a final decision. H&r block 2010 If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above. H&r block 2010 You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. H&r block 2010 You may need more tax withheld, or you may need less. H&r block 2010 Table 1-2. H&r block 2010 Tax Credits for 2014 For more information about the . H&r block 2010 . H&r block 2010 . H&r block 2010 See . H&r block 2010 . H&r block 2010 . H&r block 2010 Adoption credit Form 8839 instructions Child and dependent care expenses, credit for Publication 503, Child and Dependent Care Expenses Child tax credit (including the additional child tax credit) Instructions for Form 1040 or Form 1040A Earned income credit Publication 596, Earned Income Credit Education credits Publication 970, Tax Benefits for Education Elderly or the disabled, credit for the Publication 524, Credit for the Elderly or the Disabled Foreign tax credit (except any credit that applies to wages not subject to U. H&r block 2010 S. H&r block 2010 income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals General business credit Form 3800, General Business Credit Mortgage interest credit Publication 530, Tax Information for First-Time Homeowners Qualified electric vehicle passive activity credit Form 8834 Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year) Form 8801 instructions Retirement savings contributions credit (saver's credit) Publication 590, Individual Retirement Arrangements (IRAs) Tax credit bonds, credit to holders of Form 8912 instructions Completing Form W-4 and Worksheets When reading the following discussion, you may find it helpful to refer to Form W-4. H&r block 2010 Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. H&r block 2010 Everyone else must have tax withheld at the higher single rate. H&r block 2010 Single. H&r block 2010   You must check the “Single” box if any of the following applies. H&r block 2010 You are single. H&r block 2010 If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. H&r block 2010 You are married, but neither you nor your spouse is a citizen or resident of the United States. H&r block 2010 You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. H&r block 2010 For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. H&r block 2010 Married. H&r block 2010   You qualify to check the “Married” box if any of the following applies. H&r block 2010 You are married and neither you nor your spouse is a nonresident alien. H&r block 2010 You are considered married for the whole year even if your spouse died during the year. H&r block 2010 You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. H&r block 2010 For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. H&r block 2010 You expect to be able to file your return as a qualifying widow or widower. H&r block 2010 You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. H&r block 2010 However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. H&r block 2010 For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information. H&r block 2010 Married, but withhold at higher single rate. H&r block 2010   Some married people find that they do not have enough tax withheld at the married rate. H&r block 2010 This can happen, for example, when both spouses work. H&r block 2010 To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). H&r block 2010 Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. H&r block 2010 Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. H&r block 2010 You will have the most tax withheld if you claim “0” allowances. H&r block 2010 The number of allowances you can claim depends on the following factors. H&r block 2010 How many exemptions you can take on your tax return. H&r block 2010 Whether you have income from more than one job. H&r block 2010 What deductions, adjustments to income, and credits you expect to have for the year. H&r block 2010 Whether you will file as head of household. H&r block 2010 If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. H&r block 2010 Or, if married filing separately, whether or not your spouse also works. H&r block 2010 Form W-4 worksheets. H&r block 2010    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. H&r block 2010 The worksheets are for your own records. H&r block 2010 Do not give them to your employer. H&r block 2010   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. H&r block 2010 If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. H&r block 2010 Complete separate sets of worksheets only if you and your spouse will file separate returns. H&r block 2010   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. H&r block 2010 Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. H&r block 2010 If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments. H&r block 2010   Complete all worksheets that apply to your situation. H&r block 2010 The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. H&r block 2010 Multiple jobs. H&r block 2010   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. H&r block 2010 Then split your allowances between the Forms W-4 for each job. H&r block 2010 You cannot claim the same allowances with more than one employer at the same time. H&r block 2010 You can claim all your allowances with one employer and none with the other(s), or divide them any other way. H&r block 2010 Married individuals. H&r block 2010   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. H&r block 2010 Use only one set of worksheets. H&r block 2010 You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. H&r block 2010   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. H&r block 2010 Alternative method of figuring withholding allowances. H&r block 2010   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. H&r block 2010   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. H&r block 2010 It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. H&r block 2010   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. H&r block 2010 You still must give your employer a Form W-4 claiming your withholding allowances. H&r block 2010 Employees who are not citizens or residents. H&r block 2010   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. H&r block 2010 However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. H&r block 2010 S. H&r block 2010 national. H&r block 2010 It also does not apply if your spouse is a U. H&r block 2010 S. H&r block 2010 citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. H&r block 2010 Special rules apply to residents of South Korea and India. H&r block 2010 For more information, see Withholding From Compensation in chapter 8 of Publication 519. H&r block 2010 Personal Allowances Worksheet Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply. H&r block 2010 Exemptions. H&r block 2010 Only one job. H&r block 2010 Head of household filing status. H&r block 2010 Child and dependent care credit. H&r block 2010 Child tax credit. H&r block 2010 Exemptions (worksheet lines A, C, and D). H&r block 2010   You can claim one withholding allowance for each exemption you expect to claim on your tax return. H&r block 2010 Self. H&r block 2010   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. H&r block 2010 If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. H&r block 2010 Spouse. H&r block 2010   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. H&r block 2010 Do not claim this allowance if you and your spouse expect to file separate returns. H&r block 2010 Dependents. H&r block 2010   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. H&r block 2010 Only one job (worksheet line B). H&r block 2010    You can claim an additional withholding allowance if any of the following apply for 2014. H&r block 2010 You are single and you have only one job at a time. H&r block 2010 You are married, you have only one job at a time, and your spouse does not work. H&r block 2010 Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. H&r block 2010 If you qualify for this allowance, enter “1” on line B of the worksheet. H&r block 2010 Head of household filing status (worksheet line E). H&r block 2010   Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: Was the main home for all of 2014 of your parent whom you can claim as a dependent, or You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent. H&r block 2010 For more information, see Publication 501. H&r block 2010   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. H&r block 2010 Reduction of personal allowances. H&r block 2010   For 2014, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status. H&r block 2010 Personal Allowance Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1-1 to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet. H&r block 2010 Worksheet 1-1. H&r block 2010 Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. H&r block 2010 Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. H&r block 2010   2. H&r block 2010 Enter your expected AGI 2. H&r block 2010       3. H&r block 2010 Enter $254,200 if single $305,050 if married filing jointly or qualifying widow(er) $152,525 if married filing separately $279,650 if head of household 3. H&r block 2010       4. H&r block 2010 Subtract line 3 from line 2 4. H&r block 2010       5. H&r block 2010 Divide line 4 by $125,000 ($62,500 if married filing separately). H&r block 2010 Enter the result as a decimal 5. H&r block 2010   6. H&r block 2010 Multiply line 1 by line 5. H&r block 2010 If the result is not a whole number, increase it to the next higher whole number 6. H&r block 2010   7. H&r block 2010 Subtract line 6 from line 1. H&r block 2010 The total of the numbers you enter on A, C, and D of the Personal Allowances Worksheet can not be more than this amount 7. H&r block 2010     Child and dependent care credit (worksheet line F). H&r block 2010   Enter “1” on line F if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2014 return. H&r block 2010 Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. H&r block 2010 For more information, see Publication 503, Child and Dependent Care Expenses. H&r block 2010   Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. H&r block 2010 Child tax credit (worksheet line G). H&r block 2010   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. H&r block 2010 Subtract “1” from that amount if you have three to six eligible children. H&r block 2010 Subtract “2” from that amount if you have seven or more eligible children. H&r block 2010   If your total income will be between $65,000 and $84,000 ($95,000 and $119,000 if married), enter “1” on line G for each eligible child. H&r block 2010   An eligible child is any child: Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Who will be under age 17 at the end of 2014, Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled, Who will not provide over half of his or her own support for 2014, Who will not file a joint return, unless the return is filed only as a claim for refund, Who will live with you for more than half of 2014, Who is a U. H&r block 2010 S. H&r block 2010 citizen, U. H&r block 2010 S. H&r block 2010 national, or U. H&r block 2010 S. H&r block 2010 resident alien, and Who will be claimed as a dependent on your return. H&r block 2010 If you are a U. H&r block 2010 S. H&r block 2010 citizen or U. H&r block 2010 S. H&r block 2010 national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. H&r block 2010   Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2013 instructions for Form 1040 or 1040A, line 6c. H&r block 2010   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. H&r block 2010   Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. H&r block 2010 Total personal allowances (worksheet line H). H&r block 2010    Add lines A through G and enter the total on line H. H&r block 2010 If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4. H&r block 2010 Deductions and Adjustments Worksheet Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. H&r block 2010 Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. H&r block 2010 Use the amount of each item you reasonably can expect to show on your return. H&r block 2010 However, do not use more than: The amount shown for that item on your 2013 return (or your 2012 return if you have not yet filed your 2013 return), plus Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2013 or 2014. H&r block 2010 Do not include any amount shown on your last tax return that has been disallowed by the IRS. H&r block 2010 Example. H&r block 2010 On June 30, 2013, you bought your first home. H&r block 2010 On your 2013 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. H&r block 2010 Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2014 return. H&r block 2010 You can use $13,200 to figure the number of your withholding allowances for itemized deductions. H&r block 2010 Not itemizing deductions. H&r block 2010   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet. H&r block 2010 Itemized deductions (worksheet line 1). H&r block 2010   Enter your estimated total itemized deductions on line 1 of the worksheet. H&r block 2010   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. H&r block 2010 You normally claim these deductions on Schedule A of Form 1040. H&r block 2010 Medical and dental expenses that are more than 10% (7. H&r block 2010 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). H&r block 2010 State and local income or property taxes. H&r block 2010 Deductible home mortgage interest. H&r block 2010 Investment interest up to net investment income. H&r block 2010 Charitable contributions. H&r block 2010 Casualty and theft losses that are more than $100 and 10% of your AGI. H&r block 2010 Fully deductible miscellaneous itemized deductions, including: Impairment-related work expenses of persons with disabilities, Federal estate tax on income in respect of a decedent, Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it, Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death, Gambling losses up to the amount of gambling winnings reported on your return, and Casualty and theft losses from  income-producing property. H&r block 2010 Other miscellaneous itemized deductions that are more than 2% of your AGI, including: Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies, Safe deposit box rental, Tax counsel and assistance, and Certain fees paid to an IRA trustee or custodian. H&r block 2010 AGI. H&r block 2010   For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2014 minus any estimated adjustments to income (discussed later) that you include on line 4 of the Deductions and Adjustments Worksheet. H&r block 2010 Phaseout of itemized deductions. H&r block 2010   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. H&r block 2010    Itemized Deduction Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1–2 to figure your reduction in itemized deductions. H&r block 2010 Worksheet 1-2. H&r block 2010 Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. H&r block 2010 Enter the estimated total of your itemized deductions 1. H&r block 2010   2. H&r block 2010 Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. H&r block 2010   3. H&r block 2010 Is the amount on line 2 less than the amount on line 1? ❑ No. H&r block 2010 Stop here. H&r block 2010 Your deduction is not limited. H&r block 2010 Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. H&r block 2010  ❑ Yes. H&r block 2010 Subtract line 2 from line 1. H&r block 2010 3. H&r block 2010       4. H&r block 2010 Multiply line 3 by 80% (. H&r block 2010 80) 4. H&r block 2010       5. H&r block 2010 Enter your expected AGI 5. H&r block 2010       6. H&r block 2010 Enter $305,050 If married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately 6. H&r block 2010   7. H&r block 2010 Is the amount on line 6 less than the amount on line 5? ❑ No. H&r block 2010 Stop here. H&r block 2010 Your deduction is not limited. H&r block 2010 Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. H&r block 2010  ❑ Yes. H&r block 2010 Subtract line 6 from line 5. H&r block 2010 7. H&r block 2010       8. H&r block 2010 Multiply line 7 by 3% (. H&r block 2010 03) 8. H&r block 2010       9. H&r block 2010 Enter the smaller of line 4 or line 8 9. H&r block 2010     10. H&r block 2010 Subtract line 9 from line 1. H&r block 2010 Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. H&r block 2010     Adjustments to income (worksheet line 4). H&r block 2010   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. H&r block 2010   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. H&r block 2010 These adjustments appear on page 1 of your Form 1040 or 1040A. H&r block 2010 Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. H&r block 2010 Net operating loss carryovers. H&r block 2010 Certain business expenses of reservists, performing artists, and fee-based government officials. H&r block 2010 Health savings account or medical savings account deduction. H&r block 2010 Certain moving expenses. H&r block 2010 Deduction for self-employment tax. H&r block 2010 Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. H&r block 2010 Self-employed health insurance deduction. H&r block 2010 Penalty on early withdrawal of savings. H&r block 2010 Alimony paid. H&r block 2010 IRA deduction. H&r block 2010 Student loan interest deduction. H&r block 2010 Jury duty pay given to your employer. H&r block 2010 Reforestation amortization and expenses. H&r block 2010 Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. H&r block 2010 Repayment of certain supplemental unemployment benefits. H&r block 2010 Contributions to IRC 501(c)(18)(D) pension plans. H&r block 2010 Contributions by certain chaplains to IRC 403(b) plans. H&r block 2010 Attorney fees and court costs for certain unlawful discrimination claims. H&r block 2010 Attorney fees and court costs for certain whistleblower awards. H&r block 2010 Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). H&r block 2010 Tax credits (worksheet line 5). H&r block 2010   Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). H&r block 2010 But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. H&r block 2010   If you take the child and dependent care credit into account on line 5, do not use line F. H&r block 2010 If you take the child tax credit into account on line 5, do not use line G. H&r block 2010   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. H&r block 2010 See the individual tax form instructions for more details. H&r block 2010 Foreign tax credit, except any credit that applies to wages not subject to U. H&r block 2010 S. H&r block 2010 income tax withholding because they are subject to income tax withholding by a foreign country. H&r block 2010 See Publication 514, Foreign Tax Credit for Individuals. H&r block 2010 Credit for the elderly or the disabled. H&r block 2010 See Publication 524, Credit for the Elderly or the Disabled. H&r block 2010 Education credits. H&r block 2010 See Publication 970, Tax Benefits for Education. H&r block 2010 Retirement savings contributions credit (saver's credit). H&r block 2010 See Publication 590. H&r block 2010 Mortgage interest credit. H&r block 2010 See Publication 530, Tax Information for Homeowners. H&r block 2010 Adoption credit. H&r block 2010 See the Instructions for Form 8839. H&r block 2010 Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. H&r block 2010 See the Instructions for Form 8801. H&r block 2010 General business credit. H&r block 2010 See the Instructions for Form 3800. H&r block 2010 Earned income credit. H&r block 2010 See Publication 596. H&r block 2010 Figuring line 5 entry. H&r block 2010   To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3 . H&r block 2010 Example. H&r block 2010 You are married and expect to file a joint return for 2014. H&r block 2010 Your combined estimated wages are $68,000. H&r block 2010 Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660). H&r block 2010 In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. H&r block 2010 7. H&r block 2010 Multiply your total estimated tax credits of $2,660 by 6. H&r block 2010 7. H&r block 2010 Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. H&r block 2010 Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet. H&r block 2010 Nonwage income (worksheet line 6). H&r block 2010   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). H&r block 2010 Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. H&r block 2010   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. H&r block 2010 See Getting the Right Amount of Tax Withheld , later. H&r block 2010 Net deductions and adjustments (worksheet line 8). H&r block 2010    If line 7 is less than $3,950, enter “0” on line 8. H&r block 2010 If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. H&r block 2010 Example. H&r block 2010 If line 7 is $5,200, $5,200 ÷ $3,950 = 1. H&r block 2010 32. H&r block 2010 Drop the fraction (. H&r block 2010 32) and enter “1” on line 8. H&r block 2010 Two-Earners/Multiple Jobs Worksheet Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married). H&r block 2010 Reducing your allowances (worksheet lines 1-3). H&r block 2010   On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). H&r block 2010 Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). H&r block 2010 Enter that number on line 2. H&r block 2010 However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than “3. H&r block 2010 ”    Table 1-3. H&r block 2010 Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. H&r block 2010  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. H&r block 2010 0 $42,001 – 98,000 6. H&r block 2010 7 $98,001 – 180,000 4. H&r block 2010 0 $180,001 – 270,000 3. H&r block 2010 6 $270,001 – 440,000 3. H&r block 2010 0 $440,001 – 490,000. H&r block 2010 . H&r block 2010 . H&r block 2010 . H&r block 2010 2. H&r block 2010 9 $490,001 and over 2. H&r block 2010 5 b. H&r block 2010  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. H&r block 2010 0 $19,001 – 47,000 6. H&r block 2010 7 $47,001 – 104,000 4. H&r block 2010 0 $104,001 – 205,000 3. H&r block 2010 6 $205,001 – 430,000 3. H&r block 2010 0 $430,001 and over 2. H&r block 2010 5 c. H&r block 2010  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. H&r block 2010 0 $30,001 – 66,000 6. H&r block 2010 7 $66,001 – 150,000 4. H&r block 2010 0 $150,001 – 235,000 3. H&r block 2010 6 $235,001 – 430,000 3. H&r block 2010 0 $430,001 – 460,000 2. H&r block 2010 9 $460,001 and over 2. H&r block 2010 5 d. H&r block 2010  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. H&r block 2010 0 $21,001 – 49,000 6. H&r block 2010 7 $49,001 – 90,000 4. H&r block 2010 0 $90,001 – 135,000 3. H&r block 2010 6 $135,001 – 220,000 3. H&r block 2010 0 $220,001 – 245,000 2. H&r block 2010 9 $245,001 and over 2. H&r block 2010 5   Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. H&r block 2010 If line 1 is more than or equal to line 2, do not use the rest of the worksheet. H&r block 2010   If line 1 is less than line 2, enter “0” on Form W-4, line 5. H&r block 2010 Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. H&r block 2010 Other amounts owed. H&r block 2010   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. H&r block 2010 The total is the additional withholding needed for the year. H&r block 2010 Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. H&r block 2010 You accurately complete all the Form W-4 worksheets that apply to you. H&r block 2010 You give your employer a new Form W-4 when changes occur. H&r block 2010 But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. H&r block 2010 This is most likely to happen in the following situations. H&r block 2010 You are married and both you and your spouse work. H&r block 2010 You have more than one job at a time. H&r block 2010 You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. H&r block 2010 You will owe additional amounts with your return, such as self-employment tax. H&r block 2010 Your withholding is based on obsolete Form W-4 information for a substantial part of the year. H&r block 2010 Your earnings are more than $130,000 if you are single or $180,000 if you are married. H&r block 2010 You work only part of the year. H&r block 2010 You change the number of your withholding allowances during the year. H&r block 2010 You are subject to Additional Medicare Tax or Net Investment Income Tax. H&r block 2010 If you anticipate liability for Additional Medicare Tax or Net Investment Income Tax, you may request that your employer withhold an additional amount of income tax withholding on Form W-4. H&r block 2010 Part-Year Method If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. H&r block 2010 To be eligible for the part-year method, you must meet both of the following requirements. H&r block 2010 You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. H&r block 2010 You cannot use a fiscal year. H&r block 2010 You must not expect to be employed for more than 245 days during the year. H&r block 2010 To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. H&r block 2010 If you are temporarily laid off for 30 days or less, count those days too. H&r block 2010 If you are laid off for more than 30 days, do not count those days. H&r block 2010 You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. H&r block 2010 How to apply for the part-year method. H&r block 2010   You must ask your employer in writing to use this method. H&r block 2010 The request must state all three of the following. H&r block 2010 The date of your last day of work for any prior employer during the current calendar year. H&r block 2010 That you do not expect to be employed more than 245 days during the current calendar year. H&r block 2010 That you use the calendar year as your tax year. H&r block 2010 Cumulative Wage Method If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. H&r block 2010 You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. H&r block 2010 You must ask your employer in writing to use this method. H&r block 2010 To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. H&r block 2010 ) since the beginning of the year. H&r block 2010 Aids for Figuring Your Withholding IRS Withholding Calculator. H&r block 2010   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. H&r block 2010 Go to www. H&r block 2010 irs. H&r block 2010 gov/Individuals/IRS-Withholding-Calculator. H&r block 2010 It can help you determine the correct amount to be withheld any time during the year. H&r block 2010 Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. H&r block 2010 These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. H&r block 2010 New Form W-4. H&r block 2010   When you start a new job, your employer should give you a Form W-4 to fill out. H&r block 2010 Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. H&r block 2010   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. H&r block 2010 The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. H&r block 2010 No Form W-4. H&r block 2010   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. H&r block 2010 Repaying withheld tax. H&r block 2010   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. H&r block 2010 Your employer cannot repay any of the tax previously withheld. H&r block 2010 Instead, claim the full amount withheld when you file your tax return. H&r block 2010   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. H&r block 2010 Your employer can repay the amount that was withheld incorrectly. H&r block 2010 If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. H&r block 2010 IRS review of your withholding. H&r block 2010   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. H&r block 2010 Your employer may be required to send a copy of the Form W-4 to the IRS. H&r block 2010 There is a penalty for supplying false information on Form W-4. H&r block 2010 See Penalties , later. H&r block 2010   If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a “lock-in letter”) to both you and your employer. H&r block 2010   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. H&r block 2010 If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. H&r block 2010 Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. H&r block 2010 At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter. H&r block 2010   After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter. H&r block 2010   If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. H&r block 2010 Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise. H&r block 2010   At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. H&r block 2010 Your employer must then withhold tax based on this new Form W-4. H&r block 2010   Additional information is available at IRS. H&r block 2010 gov. H&r block 2010 Enter “withholding compliance questions” in the search box. H&r block 2010 Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. H&r block 2010 The exemption applies only to income tax, not to social security or Medicare tax. H&r block 2010 You can claim exemption from withholding for 2014 only if both of the following situations apply. H&r block 2010 For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. H&r block 2010 For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. H&r block 2010 Use Figure 1-A to help you decide whether you can claim exemption from withholding. H&r block 2010 Do not use Figure 1-A if you: Are 65 or older, Are blind, Will itemize deductions on your 2014 return, Will claim an exemption for a dependent on your 2014 return, or Will claim any tax credits on your 2014 return. H&r block 2010 These situations are discussed later. H&r block 2010 Students. H&r block 2010   If you are a student, you are not automatically exempt. H&r block 2010 If you work only part time or during the summer, you may qualify for exemption from withholding. H&r block 2010 Example 1. H&r block 2010 You are a high school student and expect to earn $2,500 from a summer job. H&r block 2010 You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. H&r block 2010 You worked last summer and had $375 federal income tax withheld from your pay. H&r block 2010 The entire $375 was refunded when you filed your 2013 return. H&r block 2010 Using Figure 1-A, you find that you can claim exemption from withholding. H&r block 2010 Please click here for the text description of the image. H&r block 2010 Figure 1-A: Exemption From Withholding on Form W-4 Example 2. H&r block 2010 The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. H&r block 2010 Using Figure 1-A, you find that you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,000. H&r block 2010    You may have to file a tax return, even if you are exempt from withholding. H&r block 2010 See Publication 501 to see whether you must file a return. H&r block 2010    Age 65 or older or blind. H&r block 2010 If you are 65 or older or blind, use Worksheet 1-3 or Worksheet 1-4, to help you decide whether you can claim exemption from withholding. H&r block 2010 Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. H&r block 2010 Instead, see Itemizing deductions or claiming exemptions or credits, next. H&r block 2010 Itemizing deductions or claiming exemptions or credits. H&r block 2010   If you had no tax liability for 2013, and you will: Itemize deductions, Claim an exemption for a dependent, or Claim a tax credit, use the 2014 Estimated Tax Worksheet (also see chapter 2), to figure your 2014 expected tax liability. H&r block 2010 You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. H&r block 2010 Claiming exemption from withholding. H&r block 2010   To claim exemption, you must give your employer a Form W-4. H&r block 2010 Do not complete lines 5 and 6. H&r block 2010 Enter “Exempt” on line 7. H&r block 2010   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. H&r block 2010 If you claim exemption in 2014 but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. H&r block 2010   Your claim of exempt status may be reviewed by the IRS. H&r block 2010 See IRS review of your withholding , earlier. H&r block 2010 An exemption is good for only 1 year. H&r block 2010   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. H&r block 2010 Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. H&r block 2010 The payer can figure withholding on supplemental wages using the same method used for your regular wages. H&r block 2010 However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. H&r block 2010 Expense allowances. H&r block 2010   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. H&r block 2010 A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. H&r block 2010   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. H&r block 2010 Accountable plan. H&r block 2010   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. H&r block 2010 Your expenses must have a business connection. H&r block 2010 That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. H&r block 2010 You must adequately account to your employer for these expenses within a reasonable period of time. H&r block 2010 You must return any excess reimbursement or allowance within a reasonable period of time. H&r block 2010    An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. H&r block 2010   The definition of reasonable period of time depends on the facts and circumstances of your situation. H&r block 2010 However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. H&r block 2010 You receive an advance within 30 days of the time you have an expense. H&r block 2010 You adequately account for your expenses within 60 days after they were paid or incurred. H&r block 2010 You return any excess reimbursement within 120 days after the expense was paid or incurred. H&r block 2010 You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. H&r block 2010 Nonaccountable plan. H&r block 2010   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. H&r block 2010 For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. H&r block 2010 Penalties You may have to pay a penalty of $500 if both of the following apply. H&r block 2010 You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. H&r block 2010 You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. H&r block 2010 There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. H&r block 2010 The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. H&r block 2010 These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. H&r block 2010 A simple error or an honest mistake will not result in one of these penalties. H&r block 2010 For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. H&r block 2010 However, see chapter 4 for information on the penalty for underpaying your tax. H&r block 2010 Tips The tips you receive while working on your job are considered part of your pay. H&r block 2010 You must include your tips on your tax return on the same line as your regular pay. H&r block 2010 However, tax is not withheld directly from tip income, as it is from your regular pay. H&r block 2010 Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. H&r block 2010 Reporting tips to your employer. H&r block 2010   If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. H&r block 2010 The report is due by the 10th day of the following month. H&r block 2010   If you have more than one job, make a separate report to each employer. H&r block 2010 Report only the tips you received while working for that employer, and only if they total $20 or more for the month. H&r block 2010 How employer figures amount to withhold. H&r block 2010   The tips you report to your employer are counted as part of your income for the month you report them. H&r block 2010 Your employer can figure your withholding in either of two ways. H&r block 2010 By withholding at the regular rate on the sum of your pay plus your reported tips. H&r block 2010 By withholding at the regular rate on your pay plus a percentage of your reported tips. H&r block 2010 Not enough pay to cover taxes. H&r block 2010   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. H&r block 2010   If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. H&r block 2010 If not enough tax is withheld, you may have to pay estimated tax. H&r block 2010 When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold. H&r block 2010 Tips not reported to your employer. H&r block 2010   On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). H&r block 2010 Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. H&r block 2010 Allocated tips. H&r block 2010   If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2. H&r block 2010   Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. H&r block 2010 Withholding is based only on your pay plus your reported tips. H&r block 2010 Your employer should refund to you any incorrectly withheld tax. H&r block 2010 More information. H&r block 2010   For more information on the reporting and withholding rules for tip income and on tip allocation, see Publi
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