W4 withholding strategies?

[wilkens21]

I'm currently in the 28% tax bracket and just checked my withholding and realized that I'm just doing 2 allowances for 2011 (for myself and my wife).

For the 2009 tax year, I got about 5K back from the IRS and I want to stop getting the large return.

I now a have a child as well, so I should be upping to at least 3 - I think. Is there a good formula based on that 5K return number (which is consistent most years btw). that I should make that allowance number so I can break even.

I think it would be a better strategy than giving the IRS a free loan each year. Thanks!

 

[LOL!]

The IRS web site has a calculator, but I did the following:

I went to HR and said, "I'd like to have only $20 in income Federal taxes taken from each of my paychecks. What numbers do I put on my W4?" So they told me.

It really is that easy. You know how many paychecks you get. You know how much total tax you want to pay for 2011 from your paychecks. You do the math.

 

[Texas Proud]

Thanks for the post... I just decided to take a look at mine and I changed it already...

I got a big refund last year and expect on this year.... so I will not repeat that for a third...

 

[Sue J]

You can look up the charts used by the IRS and see what amount will be withheld for what exemption amount. The chart uses whole dollar amounts and your payroll dept may use the percentage method but it will be very close -

http://www.irs.gov/pub/irs-pdf/p15.pdf

Percentage method on pages 35-36 and tables starting on page 38. Take note of single vs married and weekly/semi-weekly/bi-monthly/monthly charts.

Using a 2010 form 1040 do a ballpark rough guesstimate of your taxable income for 2011, subtract the standard deduction ($5800 single/11,600 married) or your ballpark itemized deductions if larger, and $3700 for each exemption. Figure your tax and deduct any tax credits (Child/Education/Child Care/etc). For 2011 there will be no Making Work Pay credit or Residential Energy Credit.

Then divide your final guesstimate of your tax liability by the number of paychecks and you'll see what you need taken out for each paycheck.