wiivile wrote:For single people (with no dependents)... how many allowances do you claim on your tax return? Technically, since I'm single, I'm supposed to claim 2 allowances according to form W-4 (1 for myself and 1 since 'no one can claim me as a dependent'), but I have the option of taking 0 or 1 allowances.
You get to choose the number of allowances you take. More allowances means less withheld; the government assumes that you will receive more deductions and credits when you file your return. I file married-jointly and take one allowance. My early calculations show I'll be getting a refund this year, so I could probably take two allowances if I wanted.
On the other hand, when I completed my W4 last year, I didn't know I was going to itemize deductions. That may change the calculation entirely.
wiivile wrote:What I don't understand is that I've been told that if I do take 2 allowances, I'm at risk of having to pay a tax underpayment penalty on April 15 because I didn't have enough tax withheld. How can this be, if the form W-4 specifically instructed me how many allowances I can take?
You probably won't have to pay a penalty.
Generally, you will not have to pay a penalty for 2013 if any of the following apply.
The total of your withholding and estimated tax payments was at least as much as your 2012 tax (or 110% of your 2012 tax if your AGI was more than $150,000, $75,000 if your 2013 filing status is married filing separately) and you paid all required estimated tax payments on time.
The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time.
Your total 2013 tax minus your withholding and refundable credits is less than $1,000.
You did not have a tax liability for 2012 and your 2012 tax year was 12 months, or
You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000.
I'm guessing that if you have a deficiency at all, it'll be less than 10% of your overall tax bill. Just send in a check.
wiivile wrote:I don't like the idea of taking 0 allowances, because you're basically then giving the government an interest-free loan to get your money back in April.
So, take one allowance instead of two?
The instructions give you a basis to estimate
how many allowances you should take. If you didn't have enough withheld last year, the smart thing to do would be to decrease your number of allowances. If you make the same mistake two years in a row, I think the IRS has every right to encourage you to avoid making the mistake again.
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