Federal Income Tax Withholding Question

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Parja

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Hey all, I bought a Clarity just about a week ago and figured I'd update my W-4 to bump up my allowances and reduce my withholding. I went with 10 on the allowances since that's what I've always heard is kind of the "safe maximum". However, that only cut what got taken out of my check by about half.

Since I've already paid in at my regular withholding level for ~2/3 of the year (just about all of which I'll be getting back anyway), I was expecting it to drop that amount by considerably more than that.

So, has anyone had success claiming a higher number of allowances without issue? From what I've read, technically you can claim up to 99, but apparently this will set off red flags with the IRS (yuck!).
 
Hope that you are aware that the amount that was withheld has NOTHING to do with the amount of the electric vehicle tax credit you can claim!

It depends entirely how much tax you owe before you subtract what has been withheld!

So, the key is ensuring that you have enough taxable income so that the tax you owe on it would be at least $7,500; that is, if you want the full tax credit. It doesn't matter whether $1 or $10,000 have been withheld!

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I would also note that while people play around all the time with their withholding allowances on their W-4s, if you read the form and the instructions carefully, you aren't supposed to just put down any old number of allowances you want! There are specific legal requirements for each allowance you claim...
 
IRS has a W4 calculator
You can put the 7500 under additional tax credit.
It also considers withheld already and tell you how to fill out w4 so that you have miniumi overpay and definitely not underpay. If you are not sure about anything, it's always safe to overpay. You are losing some opportunity , but totally safe
 
I suggest using a paycheck calculator like paycheckcity.com and ensure that you have the right number of allowances taken out. It’s perfectly legal to increase allowances based on expected tax credits
 
GTO 409 said:
Hope that you are aware that the amount that was withheld has NOTHING to do with the amount of the electric vehicle tax credit you can claim!

I would also note that while people play around all the time with their withholding allowances on their W-4s, if you read the form and the instructions carefully, you aren't supposed to just put down any old number of allowances you want! There are specific legal requirements for each allowance you claim...
Click to expand...

In the end, you still subtract that $7500 from the amount you owe, if any, or you get that in tax return. So, reducing the amount of withhold earlier will certainly do.

I make over 10% of my income in donation. When I used the allowance guideline (no. of children, dependent...), I still got a huge amount of tax return. So, I asked my company to change the number so they don't withhold that much money.
 
Again, withholding has nothing to do with tax liability and by extension the $7500 credit.
If you want to think otherwise, please contact the IRS help center or a tax accountant so at least you will have the correct information regardless of your preferred opinion.
Everyone has a right to their own beliefs, but when it comes down to simple math and your money it make sense take a breath and check with someone who actually knows how taxes work (not me, but an expert).
You can withhold a bazzillion dollars or zero dollars all year and your tax liability is exactly the same.
If you tax liability was $10,000 and you withheld $20,000 - you get $10,000 refunded, but your liability was still $10,000.
That $10,000 liability (even though you already paid that in the example above) is what the $7,500 credit is figured off of.
Even if you already paid more in withholding.
Withholding more or less only means how soon the government gets their money.
In the example, any way you slice it, the government only gets $10,000.
If you pay more they give you a refund, if you pay less they give you a bill - but the total tax dollars the IRS gets from you is what your tax liability amounts to.
The credit shaves dollars off the tax liability whether you withhold too much, too little, or just right.
 
Atkinson is correct, it is all the same in the end but I did not want the IRS to have my money for a year and then give it back to me so I claimed "exempt" in Feb so I have nothing withheld. I will have to remember to change it back in Jan. Since I have mentally deducted the $7500 from the price of the car, this also means I will not get a chunk back when I file that would have paid down my loan. So either I have to be disciplined enough to pay that extra amount in my paycheck toward the loan or I have to save it up and pay the chunk in the spring when we file our taxes. This is my first car loan in 20 years and I want it gone ASAP.
 
Atkinson said:
Again, withholding has nothing to do with tax liability and by extension the $7500 credit.
If you want to think otherwise, please contact the IRS help center or a tax accountant so at least you will have the correct information regardless of your preferred opinion.
Everyone has a right to their own beliefs, but when it comes down to simple math and your money it make sense take a breath and check with someone who actually knows how taxes work (not me, but an expert).
You can withhold a bazzillion dollars or zero dollars all year and your tax liability is exactly the same.
If you tax liability was $10,000 and you withheld $20,000 - you get $10,000 refunded, but your liability was still $10,000.
That $10,000 liability (even though you already paid that in the example above) is what the $7,500 credit is figured off of.
Even if you already paid more in withholding.
Withholding more or less only means how soon the government gets their money.
In the example, any way you slice it, the government only gets $10,000.
If you pay more they give you a refund, if you pay less they give you a bill - but the total tax dollars the IRS gets from you is what your tax liability amounts to.
The credit shaves dollars off the tax liability whether you withhold too much, too little, or just right.
Click to expand...

Kudos for that explanation, quick and simple but most importantly, accurate.
As someone once said “everyone is entitled to their own opinion but not to their own facts”
 
I believe the OP does not want to lend money to the IRS at 0% yield (aka getting a tax refund).

But, given that we are already in Sep and employers usually take 1 or 2 pay-cycles to update w4s,
it may not be that big of a hit if you file your taxes early and get the refund.
 
Atkinson said:
Again, withholding has nothing to do with tax liability and by extension the $7500 credit.
If you want to think otherwise, please contact the IRS help center or a tax accountant so at least you will have the correct information regardless of your preferred opinion.
Everyone has a right to their own beliefs, but when it comes down to simple math and your money it make sense take a breath and check with someone who actually knows how taxes work (not me, but an expert).
You can withhold a bazzillion dollars or zero dollars all year and your tax liability is exactly the same.
If you tax liability was $10,000 and you withheld $20,000 - you get $10,000 refunded, but your liability was still $10,000.
That $10,000 liability (even though you already paid that in the example above) is what the $7,500 credit is figured off of.
Even if you already paid more in withholding.
Withholding more or less only means how soon the government gets their money.
In the example, any way you slice it, the government only gets $10,000.
If you pay more they give you a refund, if you pay less they give you a bill - but the total tax dollars the IRS gets from you is what your tax liability amounts to.
The credit shaves dollars off the tax liability whether you withhold too much, too little, or just right.
Click to expand...

Almost right.

You'll start paying underpayment penalties if you haven't paid in at least 90% of your tax liability. An exception if a safe harbor where you've paid in 100% of the previous year tax liability, then you shouldn't be hit with the underpayment penalty.

Most people would be penalized if they paid in zero dollars, although paying in "bazillion" dollars would be just fine by the IRS. I'm sure our government would use the funds wisely /sarcasm.
 
lanb said:
I believe the OP does not want to lend money to the IRS at 0% yield (aka getting a tax refund).
Click to expand...

That's exactly the point why people want to change the withhold amount.
It's like you're lending money to government for no interest (and paid $2000 for marble stone with rubber legs which called microscope stabilizer as my friend in a hospital told me)

So, if you don't care the government holding your money, which I'd rather keep in my bank or mutual fund to use anytime I need, it certainly makes no difference to you.

It's interesting some people would be looking forward to their tax return for spending (and retailers make you think you're getting extra) when you actually don't have to and have the money readily available if you select the withhold index right.
 
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Gosh, take that $7,500 and earn .5% in a savings account. A whopping $37.50!

Plus, this would be for only two or three months, so a sixth of that.

$6.08.

Not worth the hassle. Especially as claiming excessive allowances is against the law.

By the way, let's keep the anti-government, snarky comments off the forum, too! This should be a political free zone.
 
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