Tax Exemption

Generally, the employee is required to fill out the form indicating how many exemptions you claim. For example, some folks add an exemption if they have mortgage interest.

The more exemptions that are claimed, the less tax that is taken out of your paycheck, so a "2" instead of a "1" will lead to smaller tax returns.

You can simply contact your HR department or employer and change the number of exemptions.

 

Where I work, I'm pretty sure it's an option you can change yourself through SAP.

 

I should clarify, that some folks add an exemption if they have deductible mortgage interest and itemize on their tax return.

 

You probably set up your exemptions when you filled out your W4 form when you started working with them.

 

You are referring to the "number of dependants", correct? The higher you claim, the less will be withheld, allowing you to use that money immediately. If you claim a "0", they'll withhold the maximum, giving you less to spend immediately in your paycheck.
I always claim "0", so I'll get a good chunk of change back at tax refund time. By having it withheld, I'm not tempted to spend it, and I'll get much of it back when I file.

At the end of the day, you owe what you owe.

 

Also, you can put whatever you want on the w4 concerning the dependants you claim to have. It's purpose is to estimate the amount of taxes you'll be responsible for paying for the year, and your money is withheld accordingly. Claim low, have more withheld. Claim high, and have more money available to use (in paycheck), but you may have to pay more tax money in when taxes come due.

On the actual tax filing, W2, you must be honest on your number of dependants!

 

... at which point you will think you've made a ton of money on your returns and blow it all on a new HDTV when in fact, you're only spending the money you were supposed to keep/get back during the year anyway.

jk... but I know a lot of people that operate this way and it amounts to people blowing money. The other side of the coin is instead of getting a big return, withhold less and put the money into savings and at least get some interest on the money instead of getting the money in one lump sum after it's been deflated by inflation.... or dare I say it, play russian roulette and invest it.

 

Don't forget in states where there is a state income tax, your tax return is considered addition income and (re)taxable, which is complete absurd to me. Unless you have below average money management skills, its better to collect the pay during the year and pay a little at the end of the year than get back a couple grand.

 

Not in Minnesota. If I get a STATE tax refund I have to add that back in on the following year's federal tax return, but if I get a Federal refund, that doesn't go on my state return.

 

You just reiterated what Space Ghost said.

 

I read his response as being that the federal return was considered additional income. Also, including a state tax refund in the next year's federal return is due to the fact that you can deduct your state tax on your federal return so it is not considered additional income.

For example, assume I paid $5000 in state income tax. I get to deduct that on my federal return. I then file my state return and I get a $400 refund. In essence I only paid $4600 in state income tax, yet I claimed $5000. The following year I (rightly so) have to add the $400 to my federal return.

 

Only if you itemize, and only to the extent you received a tax benefit. Your taxable amount could be decreased due to AMT or a Sales Tax Benefit Reduction.

 

2 is normal for filling out your W-4 per the instructions. You probably put 1 for not being a dependent, and 1 for being single with 1 job. That is why you have 2. Judging by your refund, your exemptions are perfect for federal.

 

True for some. I'm holding it in the bank for now, and hate having to come up with more money come tax time.