Computing withholding allowances

The way I see it usually done is for people to determine the number of allowances that results in a mild amount of underwithholding (e.g. the total of allowances on line 5 of the W-4 is 1 too many) and enter that on line 5. Then calculate the additional dollar amount necessary to reach the exact total withholding you want and enter it on Line 6 ("Additional amount, if any, you want withheld from each paycheck"). The IT-2104 looks like it should work in a similar fashion.

I don't know of a calculator, but the tables in Publication

15 (Circular E), Employer's Tax Guide should get you a pretty close estimate.

I do something like that. I determine the allowances using the worksheet on the back of the W-4, or I just stick with whatever I was using the previous year. About mid-way through the year I look at my year-to-date withholding, and figure out my safe harbor based on the previous year's tax. Then I adjust the additional amount so that I'll go over the safe harbor by a little bit.

The IRS has an on-line calculator where you plug in your specific salary, dependents, deductions etc etc and it tells you how to adjust your W-4 to come out as near to a break even as possible. Or you can adjust the numbers to be under or over withheld if desired.

You can then print a W-4 to give to employer.

The problem with calculators like this is that estimating investment income is not always easy -- how are you supposed to know what the year-end distributions from your mutual funds are going to be?

Why isn't there something simple like the OP asked for: you tell it what your salary is and how much tax you want withheld, and it tells you what to put on the W-4.

Agree that it doesn't let you enter some important variables. I am fortunate in that I'm retired and can go onto the pension website run by hewitt.com for my company and make changes to the amount being withheld. My target is to owe the IRS something small and avoid refunds.

While the IRS calc is intended for W-2 wage earners to help them with their W-4 allowances, what "variables" are you not able to estimate and enter where it asks: "Enter an estimate of any other nonwage income (such as dividends, interest, or alimony received) you expect to receive in 2017. Do not include amounts you included in earned income above: $ .00" ?

I need to be able to enter

(1) the taxable portion of Social Security rather than the total Social Security received. I don't know how to calculate that entry. I normally let Turbotax do the calculation but the IRS calculator doesn't give you the option

(2) from my 1099-B, I get both Ordinary and Qualified dividends. Again, IRS Caldulator doesn't have the option but I can enter both figures in Turbotax.

Bottom line is I get a much more accurate estimate of taxes due if I use Turbotax compared to the IRS calculator.

I see.. Yes, in your case, as a retired person, using TT to do what-if estimations is a better way to get a handle on how much withholding you need to set aside with any 401K or IRA withdrawals, Dividends, Cap Gains, etc.

Again, the IRS calc is main;y aimed at W-2 wage earners who need to adjust their W-4's as it applies to their specific situation. Some items to enter will be estimates.

FWIW, I am also retired, and have built a custom Excel spreadsheet to do what you are doing with TT. My s/s has the Taxable SS worksheet, and the Cap Gains/Dividend worksheet built-in. Been tweaking on it for

15 years ;-)

BTW, both worksheets are in an IRS 1040 Instruction booklet if you want to see how they work. See pages 30 & 44 of

The W-4 is intended as a quick, simple, and crude way for people who have mostly wage income to get their withholding somewhere near their tax liability. It isn't meant to be as precise as you desire.

To get a more precise estimate of taxes for people with multiple sources of income (and tax deductions and tax credits like the Obamacare tax credit, and ....), tax software is much more accurate (as you have noticed).

After finishing my 2016 taxes, it took me less than 5 minutes to copy the tax file, open it up with the same tax software, change any data entries to the 2017 estimated values, determine estimated tax payments (Total Tax/4 per quarter), log into my Federal and State tax payment accounts, and schedule the 4 Federal and 4 State estimated tax payments. If something changes during the year I can easily modify the future estimated tax payments, otherwise I am done for the year. Once I retired, I found doing estimated taxes easier and more flexible than having the right amount of withholding taken out of my pension payments. Right now, my former employer's pension servicing company deposits money once a month into my checking account, sends me a

1099-R once a year and withholds nothing. With a little luck, I will never have to interact with them again.

There is a slight difference between withholding and estimated taxes. For withholding, you have the option of having it divided equally among the four quarters; estimated taxes are allocated to the actual transfer date (or transfer authorization date, in some cases).

-- Arthur L. Rubin, AFSP, CRTP, Brea, CA

That's pretty much the way I do it except I don't use the 4 estimated tax payments. I have it set up for a monthly withholding of Fed and State taxes so that amount deposited to my checking account is the same every month.

I can't easily estimate what my capital gains will be. I don't know what kinds of investment sales I'm likely to do that year, or what my mutual fund distributions will be. This can easily vary by at least $10K from year to year.

That's why I prefer to target the safe harbor of withholding at least

100% of the previous year's tax liability, rather than estimating my tax for the current year.

Thanks to those who replied.

I did try the IRS's calculator, a month or so ago, but there was some problem. Sorry, I can't remember exactly what.

Two folks suggested determining a number of allowances that underwithholds you by a moderate amount, then increasing withholding by that amount. That's the approach I took last year, but the calculator I used is no longer on the Web.

So I still have the problem of determining the base number of allowances. I really wanted to do it in one go, but I guess I can use the back of the W-4, see what happens on my paycheck, and then file another W-4 with additional withholding. (And ditto for New York's form.)

Someone suggested Circular E. I'll take a look before turning in my W-4. My recollection is that they no longer have tables of numbers, but I could be wrong.

Use the real stuff. Pretend you're filling out 2015 tax forms (or whatever year your last TT software handled). Use your real income and expense numbers and do a run with 1, 2, 3, ..., n exceptions. See what happens at the bottom line. You can do this for both US and state if you have the software.

/BAH