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Taxes help 1. Taxes help   Tax Withholding for 2014 Table of Contents Introduction Useful Items - You may want to see: Salaries and WagesDetermining Amount of Tax Withheld Using Form W-4 Completing Form W-4 and Worksheets Getting the Right Amount of Tax Withheld Rules Your Employer Must Follow Exemption From Withholding Supplemental Wages Penalties Tips Taxable Fringe BenefitsSpecial rule. Taxes help Exceptions. Taxes help Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. Taxes help Identical wagers. Taxes help Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. Taxes help Underreported interest or dividends. Taxes help Introduction This chapter discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. Taxes help This chapter explains in detail the rules for withholding tax from each of these types of income. Taxes help The discussion of salaries and wages includes an explanation of how to complete Form W-4. Taxes help This chapter also covers backup withholding on interest, dividends, and other payments. Taxes help Useful Items - You may want to see: Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request See chapter 5 of this publication for information about getting these publications and forms. Taxes help Salaries and Wages Income tax is withheld from the pay of most employees. Taxes help Your pay includes your regular pay, bonuses, commissions, and vacation allowances. Taxes help It also includes reimbursements and other expense allowances paid under a nonaccountable plan. Taxes help See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. Taxes help If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. Taxes help This is explained under Exemption From Withholding , later. Taxes help You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. Taxes help If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2. Taxes help Military retirees. Taxes help   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. Taxes help Household workers. Taxes help   If you are a household worker, you can ask your employer to withhold income tax from your pay. Taxes help A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. Taxes help   Tax is withheld only if you want it withheld and your employer agrees to withhold it. Taxes help If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. Taxes help Farmworkers. Taxes help   Generally, income tax is withheld from your cash wages for work on a farm unless your employer both: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. Taxes help Differential wage payments. Taxes help   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Taxes help Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. Taxes help The wages and withholding will be reported on Form W-2, Wage and Tax Statement. Taxes help Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. Taxes help The amount you earn in each payroll period. Taxes help The information you give your employer on Form W-4. Taxes help Form W-4 includes four types of information that your employer will use to figure your withholding. Taxes help Whether to withhold at the single rate or at the lower married rate. Taxes help How many withholding allowances you claim (each allowance reduces the amount withheld). Taxes help Whether you want an additional amount withheld. Taxes help Whether you are claiming an exemption from withholding in 2014. Taxes help See Exemption From Withholding , later. Taxes help Note. Taxes help You must specify a filing status and a number of withholding allowances on Form W-4. Taxes help You cannot specify only a dollar amount of withholding. Taxes help New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. Taxes help Your employer should have copies of the form. Taxes help If you need to change the information later, you must fill out a new form. Taxes help If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. Taxes help You may be able to avoid overwithholding if your employer agrees to use the part-year method. Taxes help See Part-Year Method , later, for more information. Taxes help Employee also receiving pension income. Taxes help   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. Taxes help However, you can choose to split your withholding allowances between your pension and job in any manner. Taxes help Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. Taxes help When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. Taxes help If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. Taxes help See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. Taxes help Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. Taxes help See Table 1-1 for examples of personal and financial changes you should consider. Taxes help Table 1-1. Taxes help Personal and Financial Changes Factor Examples Lifestyle change Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement Filing chapter 11 bankruptcy Wage income You or your spouse start or stop working, or start or stop a second job Change in the amount of taxable income not subject to withholding Interest income Dividends Capital gains Self-employment income IRA (including certain Roth  IRA) distributions Change in the amount of adjustments to income IRA deduction Student loan interest deduction Alimony expense Change in the amount of itemized deductions or tax credits Medical expenses Taxes Interest expense Gifts to charity Job expenses Dependent care expenses Education credit Child tax credit Earned income credit If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method , explained later. Taxes help Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. Taxes help If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. Taxes help You can get a blank Form W-4 from your employer or print the form from IRS. Taxes help gov. Taxes help You should try to have your withholding match your actual tax liability. Taxes help If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. Taxes help If too much tax is withheld, you will lose the use of that money until you get your refund. Taxes help Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. Taxes help See Table 1-1 for examples. Taxes help Note. Taxes help You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax. Taxes help When Should You Check Your Withholding? The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. Taxes help You should check your withholding when any of the following situations occur. Taxes help You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. Taxes help You prepare your 2013 tax return and get a: Big refund, or Balance due that is: More than you can comfortably pay, or Subject to a penalty. Taxes help There are changes in your life or financial situation that affect your tax liability. Taxes help See Table 1-1. Taxes help There are changes in the tax law that affect your tax liability. Taxes help How Do You Check Your Withholding? You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. Taxes help You can also use the IRS Withholding calculator at www. Taxes help irs. Taxes help gov/individuals. Taxes help If you use the worksheets and tables in this publication, follow these steps. Taxes help Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. Taxes help Fill out Worksheet 1-7 to project your total federal withholding for 2014 and compare that with your projected tax liability from Worksheet 1-5. Taxes help If you are not having enough tax withheld, line 6 of Worksheet 1-7 will show you how much more to have withheld each payday. Taxes help For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding? If line 5 of Worksheet 1-7 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday. Taxes help How Do You Increase Your Withholding? There are two ways to increase your withholding. Taxes help You can: Decrease the number of allowances you claim on Form W-4, or Enter an additional amount that you want withheld from each paycheck on Form W-4. Taxes help Requesting an additional amount withheld. Taxes help   You can request that an additional amount be withheld from each paycheck by following these steps. Taxes help Complete Worksheets 1-5 and 1-7. Taxes help Complete a new Form W-4 if the amount on Worksheet 1-7, line 5: Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or Would cause you to pay a penalty when you file your tax return for 2014. Taxes help Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. Taxes help This is the number of allowances you entered on the last Form W-4 you gave your employer. Taxes help Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. Taxes help Give your newly completed Form W-4 to your employer. Taxes help   If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year. Taxes help Example. Taxes help Early in 2014, Steve Miller used Worksheets 1-5, 1-6, and 1-7 to project his 2014 tax liability ($4,316) and his withholding for the year ($3,516). Taxes help Steve's tax will be underwithheld by $800 ($4,316 − $3,516). Taxes help His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. Taxes help Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. Taxes help Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on the form as the additional amount to be withheld from his pay each payday. Taxes help He gives the completed form to his employer. Taxes help What if I have more than one job or my spouse also has a job?   You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. Taxes help If this is the case, you can increase your withholding for one or more of the jobs. Taxes help   You can apply the amount on Worksheet 1-7, line 5, to only one job or divide it between the jobs any way you wish. Taxes help For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2014 for that job. Taxes help This will give you the additional amount to enter on the Form W-4 you will file for that job. Taxes help You need to give your employer a new Form W-4 for each job for which you are changing your withholding. Taxes help Example. Taxes help Meg Green works in a store and earns $46,000 a year. Taxes help Her husband, John, works full-time in manufacturing and earns $68,000 a year. Taxes help In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. Taxes help They expect to file a joint income tax return. Taxes help Meg and John complete Worksheets 1-5, 1-6, and 1-7. Taxes help Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. Taxes help They can divide the $4,459 any way they want. Taxes help They can enter an additional amount on either of their Forms W-4, or divide it between them. Taxes help They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4. Taxes help Both claim the same number of allowances as before. Taxes help How Do You Decrease Your Withholding? If your completed Worksheets 1-5 and 1-7 show that you may have more tax withheld than your projected tax liability for 2014, you may be able to decrease your withholding. Taxes help There are two ways to do this. Taxes help You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. Taxes help You can claim only the number of allowances to which you are entitled. Taxes help To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. Taxes help Increasing the number of allowances. Taxes help   Figure and increase the number of withholding allowances you can claim as follows. Taxes help On a new Form W-4, complete the Personal Allowances Worksheet. Taxes help If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. Taxes help If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. Taxes help If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. Taxes help If the number of allowances you can claim on Form W-4, is different from the number you already are claiming, give the newly completed Form W-4 to your employer. Taxes help Converting Credits to Withholding Allowances Table 1-2 , later, shows many of the tax credits you may be able to use to decrease your withholding. Taxes help The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. Taxes help Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. Taxes help Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. Taxes help Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. Taxes help If you take the child and dependent care credit into account on Worksheet 1-8, enter -0- on line F of the Personal Allowances Worksheet. Taxes help If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. Taxes help Example. Taxes help Brett and Alyssa Davis are married and expect to file a joint return for 2014. Taxes help Their expected taxable income from all sources is $68,000. Taxes help They expect to have $15,900 of itemized deductions. Taxes help Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. Taxes help The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. Taxes help Line 1, expected child and dependent care credit—$960. Taxes help Line 9, expected adoption credit—$1,500. Taxes help Line 10, total estimated tax credits—$2,460. Taxes help Line 11. Taxes help Their combined total income from all sources, $68,000, falls between $42,001 and $98,000 on the table for married filing jointly or qualifying widow(er). Taxes help The number to the right of this range is 6. Taxes help 7. Taxes help Line 12, multiply line 10 by line 11—$16,482. Taxes help Then the Davis' complete the Form W-4 worksheets. Taxes help Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H. Taxes help They take the result on line 12 of Worksheet 1-8, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets. Taxes help When Will Your New Form W-4 Go Into Effect? If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. Taxes help If the change is for next year, your new Form W-4 will not take effect until next year. Taxes help Retirees Returning to the Workforce When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). Taxes help However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. Taxes help You completed either form based on your projected income at that time. Taxes help Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income. Taxes help The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. Taxes help Start off with the Personal Allowances Worksheet. Taxes help Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet. Taxes help The third worksheet is the most important for this situation. Taxes help Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. Taxes help If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck. Taxes help Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. Taxes help It is your decision how to divide up your withholding allowances between these sources of income. Taxes help For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills. Taxes help ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. Taxes help There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances. Taxes help Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. Taxes help Contact your pension provider and your employer's payroll department. Taxes help And remember, this is not a final decision. Taxes help If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above. Taxes help You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. Taxes help You may need more tax withheld, or you may need less. Taxes help Table 1-2. Taxes help Tax Credits for 2014 For more information about the . Taxes help . Taxes help . Taxes help See . Taxes help . Taxes help . Taxes help Adoption credit Form 8839 instructions Child and dependent care expenses, credit for Publication 503, Child and Dependent Care Expenses Child tax credit (including the additional child tax credit) Instructions for Form 1040 or Form 1040A Earned income credit Publication 596, Earned Income Credit Education credits Publication 970, Tax Benefits for Education Elderly or the disabled, credit for the Publication 524, Credit for the Elderly or the Disabled Foreign tax credit (except any credit that applies to wages not subject to U. Taxes help S. Taxes help income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals General business credit Form 3800, General Business Credit Mortgage interest credit Publication 530, Tax Information for First-Time Homeowners Qualified electric vehicle passive activity credit Form 8834 Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year) Form 8801 instructions Retirement savings contributions credit (saver's credit) Publication 590, Individual Retirement Arrangements (IRAs) Tax credit bonds, credit to holders of Form 8912 instructions Completing Form W-4 and Worksheets When reading the following discussion, you may find it helpful to refer to Form W-4. Taxes help Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. Taxes help Everyone else must have tax withheld at the higher single rate. Taxes help Single. Taxes help   You must check the “Single” box if any of the following applies. Taxes help You are single. Taxes help If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. Taxes help You are married, but neither you nor your spouse is a citizen or resident of the United States. Taxes help You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. Taxes help For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. Taxes help Married. Taxes help   You qualify to check the “Married” box if any of the following applies. Taxes help You are married and neither you nor your spouse is a nonresident alien. Taxes help You are considered married for the whole year even if your spouse died during the year. Taxes help You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. Taxes help For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. Taxes help You expect to be able to file your return as a qualifying widow or widower. Taxes help You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. Taxes help However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. Taxes help For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Taxes help Married, but withhold at higher single rate. Taxes help   Some married people find that they do not have enough tax withheld at the married rate. Taxes help This can happen, for example, when both spouses work. Taxes help To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). Taxes help Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. Taxes help Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. Taxes help You will have the most tax withheld if you claim “0” allowances. Taxes help The number of allowances you can claim depends on the following factors. Taxes help How many exemptions you can take on your tax return. Taxes help Whether you have income from more than one job. Taxes help What deductions, adjustments to income, and credits you expect to have for the year. Taxes help Whether you will file as head of household. Taxes help If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. Taxes help Or, if married filing separately, whether or not your spouse also works. Taxes help Form W-4 worksheets. Taxes help    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. Taxes help The worksheets are for your own records. Taxes help Do not give them to your employer. Taxes help   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. Taxes help If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. Taxes help Complete separate sets of worksheets only if you and your spouse will file separate returns. Taxes help   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. Taxes help Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. Taxes help If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments. Taxes help   Complete all worksheets that apply to your situation. Taxes help The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. Taxes help Multiple jobs. Taxes help   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Taxes help Then split your allowances between the Forms W-4 for each job. Taxes help You cannot claim the same allowances with more than one employer at the same time. Taxes help You can claim all your allowances with one employer and none with the other(s), or divide them any other way. Taxes help Married individuals. Taxes help   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Taxes help Use only one set of worksheets. Taxes help You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. Taxes help   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. Taxes help Alternative method of figuring withholding allowances. Taxes help   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. Taxes help   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. Taxes help It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. Taxes help   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. Taxes help You still must give your employer a Form W-4 claiming your withholding allowances. Taxes help Employees who are not citizens or residents. Taxes help   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. Taxes help However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. Taxes help S. Taxes help national. Taxes help It also does not apply if your spouse is a U. Taxes help S. Taxes help citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. Taxes help Special rules apply to residents of South Korea and India. Taxes help For more information, see Withholding From Compensation in chapter 8 of Publication 519. Taxes help Personal Allowances Worksheet Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply. Taxes help Exemptions. Taxes help Only one job. Taxes help Head of household filing status. Taxes help Child and dependent care credit. Taxes help Child tax credit. Taxes help Exemptions (worksheet lines A, C, and D). Taxes help   You can claim one withholding allowance for each exemption you expect to claim on your tax return. Taxes help Self. Taxes help   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. Taxes help If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. Taxes help Spouse. Taxes help   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Taxes help Do not claim this allowance if you and your spouse expect to file separate returns. Taxes help Dependents. Taxes help   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. Taxes help Only one job (worksheet line B). Taxes help    You can claim an additional withholding allowance if any of the following apply for 2014. Taxes help You are single and you have only one job at a time. Taxes help You are married, you have only one job at a time, and your spouse does not work. Taxes help Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. Taxes help If you qualify for this allowance, enter “1” on line B of the worksheet. Taxes help Head of household filing status (worksheet line E). Taxes help   Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: Was the main home for all of 2014 of your parent whom you can claim as a dependent, or You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent. Taxes help For more information, see Publication 501. Taxes help   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. Taxes help Reduction of personal allowances. Taxes help   For 2014, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status. Taxes help Personal Allowance Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1-1 to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet. Taxes help Worksheet 1-1. Taxes help Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. Taxes help Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. Taxes help   2. Taxes help Enter your expected AGI 2. Taxes help       3. Taxes help Enter $254,200 if single $305,050 if married filing jointly or qualifying widow(er) $152,525 if married filing separately $279,650 if head of household 3. Taxes help       4. Taxes help Subtract line 3 from line 2 4. Taxes help       5. Taxes help Divide line 4 by $125,000 ($62,500 if married filing separately). Taxes help Enter the result as a decimal 5. Taxes help   6. Taxes help Multiply line 1 by line 5. Taxes help If the result is not a whole number, increase it to the next higher whole number 6. Taxes help   7. Taxes help Subtract line 6 from line 1. Taxes help The total of the numbers you enter on A, C, and D of the Personal Allowances Worksheet can not be more than this amount 7. Taxes help     Child and dependent care credit (worksheet line F). Taxes help   Enter “1” on line F if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2014 return. Taxes help Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. Taxes help For more information, see Publication 503, Child and Dependent Care Expenses. Taxes help   Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. Taxes help Child tax credit (worksheet line G). Taxes help   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. Taxes help Subtract “1” from that amount if you have three to six eligible children. Taxes help Subtract “2” from that amount if you have seven or more eligible children. Taxes help   If your total income will be between $65,000 and $84,000 ($95,000 and $119,000 if married), enter “1” on line G for each eligible child. Taxes help   An eligible child is any child: Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Who will be under age 17 at the end of 2014, Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled, Who will not provide over half of his or her own support for 2014, Who will not file a joint return, unless the return is filed only as a claim for refund, Who will live with you for more than half of 2014, Who is a U. Taxes help S. Taxes help citizen, U. Taxes help S. Taxes help national, or U. Taxes help S. Taxes help resident alien, and Who will be claimed as a dependent on your return. Taxes help If you are a U. Taxes help S. Taxes help citizen or U. Taxes help S. Taxes help national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. Taxes help   Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2013 instructions for Form 1040 or 1040A, line 6c. Taxes help   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. Taxes help   Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. Taxes help Total personal allowances (worksheet line H). Taxes help    Add lines A through G and enter the total on line H. Taxes help If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4. Taxes help Deductions and Adjustments Worksheet Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. Taxes help Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. Taxes help Use the amount of each item you reasonably can expect to show on your return. Taxes help However, do not use more than: The amount shown for that item on your 2013 return (or your 2012 return if you have not yet filed your 2013 return), plus Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2013 or 2014. Taxes help Do not include any amount shown on your last tax return that has been disallowed by the IRS. Taxes help Example. Taxes help On June 30, 2013, you bought your first home. Taxes help On your 2013 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Taxes help Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2014 return. Taxes help You can use $13,200 to figure the number of your withholding allowances for itemized deductions. Taxes help Not itemizing deductions. Taxes help   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet. Taxes help Itemized deductions (worksheet line 1). Taxes help   Enter your estimated total itemized deductions on line 1 of the worksheet. Taxes help   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. Taxes help You normally claim these deductions on Schedule A of Form 1040. Taxes help Medical and dental expenses that are more than 10% (7. Taxes help 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). Taxes help State and local income or property taxes. Taxes help Deductible home mortgage interest. Taxes help Investment interest up to net investment income. Taxes help Charitable contributions. Taxes help Casualty and theft losses that are more than $100 and 10% of your AGI. Taxes help Fully deductible miscellaneous itemized deductions, including: Impairment-related work expenses of persons with disabilities, Federal estate tax on income in respect of a decedent, Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it, Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death, Gambling losses up to the amount of gambling winnings reported on your return, and Casualty and theft losses from  income-producing property. Taxes help Other miscellaneous itemized deductions that are more than 2% of your AGI, including: Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies, Safe deposit box rental, Tax counsel and assistance, and Certain fees paid to an IRA trustee or custodian. Taxes help AGI. Taxes help   For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2014 minus any estimated adjustments to income (discussed later) that you include on line 4 of the Deductions and Adjustments Worksheet. Taxes help Phaseout of itemized deductions. Taxes help   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. Taxes help    Itemized Deduction Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1–2 to figure your reduction in itemized deductions. Taxes help Worksheet 1-2. Taxes help Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. Taxes help Enter the estimated total of your itemized deductions 1. Taxes help   2. Taxes help Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. Taxes help   3. Taxes help Is the amount on line 2 less than the amount on line 1? ❑ No. Taxes help Stop here. Taxes help Your deduction is not limited. Taxes help Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. Taxes help  ❑ Yes. Taxes help Subtract line 2 from line 1. Taxes help 3. Taxes help       4. Taxes help Multiply line 3 by 80% (. Taxes help 80) 4. Taxes help       5. Taxes help Enter your expected AGI 5. Taxes help       6. Taxes help Enter $305,050 If married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately 6. Taxes help   7. Taxes help Is the amount on line 6 less than the amount on line 5? ❑ No. Taxes help Stop here. Taxes help Your deduction is not limited. Taxes help Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. Taxes help  ❑ Yes. Taxes help Subtract line 6 from line 5. Taxes help 7. Taxes help       8. Taxes help Multiply line 7 by 3% (. Taxes help 03) 8. Taxes help       9. Taxes help Enter the smaller of line 4 or line 8 9. Taxes help     10. Taxes help Subtract line 9 from line 1. Taxes help Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. Taxes help     Adjustments to income (worksheet line 4). Taxes help   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. Taxes help   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. Taxes help These adjustments appear on page 1 of your Form 1040 or 1040A. Taxes help Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. Taxes help Net operating loss carryovers. Taxes help Certain business expenses of reservists, performing artists, and fee-based government officials. Taxes help Health savings account or medical savings account deduction. Taxes help Certain moving expenses. Taxes help Deduction for self-employment tax. Taxes help Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. Taxes help Self-employed health insurance deduction. Taxes help Penalty on early withdrawal of savings. Taxes help Alimony paid. Taxes help IRA deduction. Taxes help Student loan interest deduction. Taxes help Jury duty pay given to your employer. Taxes help Reforestation amortization and expenses. Taxes help Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Taxes help Repayment of certain supplemental unemployment benefits. Taxes help Contributions to IRC 501(c)(18)(D) pension plans. Taxes help Contributions by certain chaplains to IRC 403(b) plans. Taxes help Attorney fees and court costs for certain unlawful discrimination claims. Taxes help Attorney fees and court costs for certain whistleblower awards. Taxes help Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). Taxes help Tax credits (worksheet line 5). Taxes help   Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). Taxes help But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. Taxes help   If you take the child and dependent care credit into account on line 5, do not use line F. Taxes help If you take the child tax credit into account on line 5, do not use line G. Taxes help   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. Taxes help See the individual tax form instructions for more details. Taxes help Foreign tax credit, except any credit that applies to wages not subject to U. Taxes help S. Taxes help income tax withholding because they are subject to income tax withholding by a foreign country. Taxes help See Publication 514, Foreign Tax Credit for Individuals. Taxes help Credit for the elderly or the disabled. Taxes help See Publication 524, Credit for the Elderly or the Disabled. Taxes help Education credits. Taxes help See Publication 970, Tax Benefits for Education. Taxes help Retirement savings contributions credit (saver's credit). Taxes help See Publication 590. Taxes help Mortgage interest credit. Taxes help See Publication 530, Tax Information for Homeowners. Taxes help Adoption credit. Taxes help See the Instructions for Form 8839. Taxes help Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. Taxes help See the Instructions for Form 8801. Taxes help General business credit. Taxes help See the Instructions for Form 3800. Taxes help Earned income credit. Taxes help See Publication 596. Taxes help Figuring line 5 entry. Taxes help   To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3 . Taxes help Example. Taxes help You are married and expect to file a joint return for 2014. Taxes help Your combined estimated wages are $68,000. Taxes help Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660). Taxes help In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. Taxes help 7. Taxes help Multiply your total estimated tax credits of $2,660 by 6. Taxes help 7. Taxes help Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Taxes help Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet. Taxes help Nonwage income (worksheet line 6). Taxes help   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Taxes help Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. Taxes help   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. Taxes help See Getting the Right Amount of Tax Withheld , later. Taxes help Net deductions and adjustments (worksheet line 8). Taxes help    If line 7 is less than $3,950, enter “0” on line 8. Taxes help If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. Taxes help Example. Taxes help If line 7 is $5,200, $5,200 ÷ $3,950 = 1. Taxes help 32. Taxes help Drop the fraction (. Taxes help 32) and enter “1” on line 8. Taxes help Two-Earners/Multiple Jobs Worksheet Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married). Taxes help Reducing your allowances (worksheet lines 1-3). Taxes help   On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). Taxes help Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). Taxes help Enter that number on line 2. Taxes help However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than “3. Taxes help ”    Table 1-3. Taxes help Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. Taxes help  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. Taxes help 0 $42,001 – 98,000 6. Taxes help 7 $98,001 – 180,000 4. Taxes help 0 $180,001 – 270,000 3. Taxes help 6 $270,001 – 440,000 3. Taxes help 0 $440,001 – 490,000. Taxes help . Taxes help . Taxes help . Taxes help 2. Taxes help 9 $490,001 and over 2. Taxes help 5 b. Taxes help  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. Taxes help 0 $19,001 – 47,000 6. Taxes help 7 $47,001 – 104,000 4. Taxes help 0 $104,001 – 205,000 3. Taxes help 6 $205,001 – 430,000 3. Taxes help 0 $430,001 and over 2. Taxes help 5 c. Taxes help  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. Taxes help 0 $30,001 – 66,000 6. Taxes help 7 $66,001 – 150,000 4. Taxes help 0 $150,001 – 235,000 3. Taxes help 6 $235,001 – 430,000 3. Taxes help 0 $430,001 – 460,000 2. Taxes help 9 $460,001 and over 2. Taxes help 5 d. Taxes help  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. Taxes help 0 $21,001 – 49,000 6. Taxes help 7 $49,001 – 90,000 4. Taxes help 0 $90,001 – 135,000 3. Taxes help 6 $135,001 – 220,000 3. Taxes help 0 $220,001 – 245,000 2. Taxes help 9 $245,001 and over 2. Taxes help 5   Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. Taxes help If line 1 is more than or equal to line 2, do not use the rest of the worksheet. Taxes help   If line 1 is less than line 2, enter “0” on Form W-4, line 5. Taxes help Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. Taxes help Other amounts owed. Taxes help   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. Taxes help The total is the additional withholding needed for the year. Taxes help Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. Taxes help You accurately complete all the Form W-4 worksheets that apply to you. Taxes help You give your employer a new Form W-4 when changes occur. Taxes help But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. Taxes help This is most likely to happen in the following situations. Taxes help You are married and both you and your spouse work. Taxes help You have more than one job at a time. Taxes help You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. Taxes help You will owe additional amounts with your return, such as self-employment tax. Taxes help Your withholding is based on obsolete Form W-4 information for a substantial part of the year. Taxes help Your earnings are more than $130,000 if you are single or $180,000 if you are married. Taxes help You work only part of the year. Taxes help You change the number of your withholding allowances during the year. Taxes help You are subject to Additional Medicare Tax or Net Investment Income Tax. Taxes help If you anticipate liability for Additional Medicare Tax or Net Investment Income Tax, you may request that your employer withhold an additional amount of income tax withholding on Form W-4. Taxes help Part-Year Method If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. Taxes help To be eligible for the part-year method, you must meet both of the following requirements. Taxes help You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. Taxes help You cannot use a fiscal year. Taxes help You must not expect to be employed for more than 245 days during the year. Taxes help To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. Taxes help If you are temporarily laid off for 30 days or less, count those days too. Taxes help If you are laid off for more than 30 days, do not count those days. Taxes help You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. Taxes help How to apply for the part-year method. Taxes help   You must ask your employer in writing to use this method. Taxes help The request must state all three of the following. Taxes help The date of your last day of work for any prior employer during the current calendar year. Taxes help That you do not expect to be employed more than 245 days during the current calendar year. Taxes help That you use the calendar year as your tax year. Taxes help Cumulative Wage Method If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. Taxes help You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. Taxes help You must ask your employer in writing to use this method. Taxes help To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. Taxes help ) since the beginning of the year. Taxes help Aids for Figuring Your Withholding IRS Withholding Calculator. Taxes help   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. Taxes help Go to www. Taxes help irs. Taxes help gov/Individuals/IRS-Withholding-Calculator. Taxes help It can help you determine the correct amount to be withheld any time during the year. Taxes help Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. Taxes help These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. Taxes help New Form W-4. Taxes help   When you start a new job, your employer should give you a Form W-4 to fill out. Taxes help Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. Taxes help   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. Taxes help The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. Taxes help No Form W-4. Taxes help   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. Taxes help Repaying withheld tax. Taxes help   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Taxes help Your employer cannot repay any of the tax previously withheld. Taxes help Instead, claim the full amount withheld when you file your tax return. Taxes help   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Taxes help Your employer can repay the amount that was withheld incorrectly. Taxes help If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. Taxes help IRS review of your withholding. Taxes help   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. Taxes help Your employer may be required to send a copy of the Form W-4 to the IRS. Taxes help There is a penalty for supplying false information on Form W-4. Taxes help See Penalties , later. Taxes help   If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a “lock-in letter”) to both you and your employer. Taxes help   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. Taxes help If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. Taxes help Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. Taxes help At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter. Taxes help   After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter. Taxes help   If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Taxes help Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise. Taxes help   At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Taxes help Your employer must then withhold tax based on this new Form W-4. Taxes help   Additional information is available at IRS. Taxes help gov. Taxes help Enter “withholding compliance questions” in the search box. Taxes help Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. Taxes help The exemption applies only to income tax, not to social security or Medicare tax. Taxes help You can claim exemption from withholding for 2014 only if both of the following situations apply. Taxes help For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. Taxes help For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. Taxes help Use Figure 1-A to help you decide whether you can claim exemption from withholding. Taxes help Do not use Figure 1-A if you: Are 65 or older, Are blind, Will itemize deductions on your 2014 return, Will claim an exemption for a dependent on your 2014 return, or Will claim any tax credits on your 2014 return. Taxes help These situations are discussed later. Taxes help Students. Taxes help   If you are a student, you are not automatically exempt. Taxes help If you work only part time or during the summer, you may qualify for exemption from withholding. Taxes help Example 1. Taxes help You are a high school student and expect to earn $2,500 from a summer job. Taxes help You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. Taxes help You worked last summer and had $375 federal income tax withheld from your pay. Taxes help The entire $375 was refunded when you filed your 2013 return. Taxes help Using Figure 1-A, you find that you can claim exemption from withholding. Taxes help Please click here for the text description of the image. Taxes help Figure 1-A: Exemption From Withholding on Form W-4 Example 2. Taxes help The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. Taxes help Using Figure 1-A, you find that you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,000. Taxes help    You may have to file a tax return, even if you are exempt from withholding. Taxes help See Publication 501 to see whether you must file a return. Taxes help    Age 65 or older or blind. Taxes help If you are 65 or older or blind, use Worksheet 1-3 or Worksheet 1-4, to help you decide whether you can claim exemption from withholding. Taxes help Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. Taxes help Instead, see Itemizing deductions or claiming exemptions or credits, next. Taxes help Itemizing deductions or claiming exemptions or credits. Taxes help   If you had no tax liability for 2013, and you will: Itemize deductions, Claim an exemption for a dependent, or Claim a tax credit, use the 2014 Estimated Tax Worksheet (also see chapter 2), to figure your 2014 expected tax liability. Taxes help You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. Taxes help Claiming exemption from withholding. Taxes help   To claim exemption, you must give your employer a Form W-4. Taxes help Do not complete lines 5 and 6. Taxes help Enter “Exempt” on line 7. Taxes help   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. Taxes help If you claim exemption in 2014 but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. Taxes help   Your claim of exempt status may be reviewed by the IRS. Taxes help See IRS review of your withholding , earlier. Taxes help An exemption is good for only 1 year. Taxes help   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. Taxes help Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. Taxes help The payer can figure withholding on supplemental wages using the same method used for your regular wages. Taxes help However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. Taxes help Expense allowances. Taxes help   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. Taxes help A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. Taxes help   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. Taxes help Accountable plan. Taxes help   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. Taxes help Your expenses must have a business connection. Taxes help That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Taxes help You must adequately account to your employer for these expenses within a reasonable period of time. Taxes help You must return any excess reimbursement or allowance within a reasonable period of time. Taxes help    An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Taxes help   The definition of reasonable period of time depends on the facts and circumstances of your situation. Taxes help However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Taxes help You receive an advance within 30 days of the time you have an expense. Taxes help You adequately account for your expenses within 60 days after they were paid or incurred. Taxes help You return any excess reimbursement within 120 days after the expense was paid or incurred. Taxes help You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Taxes help Nonaccountable plan. Taxes help   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. Taxes help For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. Taxes help Penalties You may have to pay a penalty of $500 if both of the following apply. Taxes help You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. Taxes help You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. Taxes help There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. Taxes help The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. Taxes help These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. Taxes help A simple error or an honest mistake will not result in one of these penalties. Taxes help For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. Taxes help However, see chapter 4 for information on the penalty for underpaying your tax. Taxes help Tips The tips you receive while working on your job are considered part of your pay. Taxes help You must include your tips on your tax return on the same line as your regular pay. Taxes help However, tax is not withheld directly from tip income, as it is from your regular pay. Taxes help Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. Taxes help Reporting tips to your employer. Taxes help   If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. Taxes help The report is due by the 10th day of the following month. Taxes help   If you have more than one job, make a separate report to each employer. Taxes help Report only the tips you received while working for that employer, and only if they total $20 or more for the month. Taxes help How employer figures amount to withhold. Taxes help   The tips you report to your employer are counted as part of your income for the month you report them. Taxes help Your employer can figure your withholding in either of two ways. Taxes help By withholding at the regular rate on the sum of your pay plus your reported tips. Taxes help By withholding at the regular rate on your pay plus a percentage of your reported tips. Taxes help Not enough pay to cover taxes. Taxes help   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. Taxes help   If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. Taxes help If not enough tax is withheld, you may have to pay estimated tax. Taxes help When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold. Taxes help Tips not reported to your employer. Taxes help   On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). Taxes help Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. Taxes help Allocated tips. Taxes help   If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2. Taxes help   Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. Taxes help Withholding is based only on your pay plus your reported tips. Taxes help Your employer should refund to you any incorrectly withheld tax. Taxes help More information. Taxes help   For more information on the reporting and withholding rules for tip income and on tip allocation, see Publi
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Taxes help 5. Taxes help   Illustrated Examples Table of Contents Illustrated Example of Form 4563Line 1. Taxes help Line 2. Taxes help Lines 3a and 3b. Taxes help Lines 4a and 4b. Taxes help Line 5. Taxes help Line 6. Taxes help Line 7. Taxes help Line 9. Taxes help Line 15. Taxes help Illustrated Example of Form 5074Part I. Taxes help Part II. Taxes help Part III. Taxes help Illustrated Example of Form 8689Part I. Taxes help Part II. Taxes help Part III. Taxes help Part IV. Taxes help Use the following examples to help you complete the correct attachment to your Form 1040. Taxes help The completed form for each example is shown on the pages that follow. Taxes help Illustrated Example of Form 4563 John Black is a U. Taxes help S. Taxes help citizen, single, and under 65. Taxes help He was a bona fide resident of American Samoa during all of 2013. Taxes help John must file Form 1040 because his gross income from sources outside the possessions ($10,000 of dividends from U. Taxes help S. Taxes help corporations) is more than his adjusted filing requirement for single filers under 65. Taxes help (See Filing Requirement if Possession Income Is Excluded in chapter 4. Taxes help ) Because he must file Form 1040 (not illustrated), he fills out Form 4563 to determine the amount of income from American Samoa he can exclude. Taxes help See Bona Fide Resident of American Samoa in chapter 3. Taxes help Completing Form 4563. Taxes help   John enters his name and social security number at the top of the form. Taxes help Line 1. Taxes help   On Form 4563 (see later), John enters the date his bona fide residence began in American Samoa, June 2, 2012. Taxes help Because he is still a bona fide resident, he enters “not ended” in the second blank space. Taxes help Line 2. Taxes help   He checks the box labeled “Rented house or apartment” to describe his type of living quarters in American Samoa. Taxes help Lines 3a and 3b. Taxes help   He checks “No” on line 3a because no family members lived with him. Taxes help He leaves line 3b blank. Taxes help Lines 4a and 4b. Taxes help   He checks “No” on line 4a because he did not maintain a home outside American Samoa. Taxes help He leaves line 4b blank. Taxes help Line 5. Taxes help   He enters the name and address of his employer, Samoa Products Co. Taxes help It is a private American Samoa corporation. Taxes help Line 6. Taxes help   He enters the dates of his 2-week vacation to New Zealand from November 11 to November 25. Taxes help That was his only trip outside American Samoa during the year. Taxes help Line 7. Taxes help   He enters the $24,000 in wages he received from Samoa Products Co. Taxes help Line 9. Taxes help   He received $220 in dividends from an American Samoa corporation, which he enters here. Taxes help He also received $10,000 of dividends from a U. Taxes help S. Taxes help corporation, but he will enter that amount only on his Form 1040 because the U. Taxes help S. Taxes help dividends do not qualify for the possession exclusion. Taxes help Line 15. Taxes help   John totals the amounts on lines 7 and 9 to get the amount he can exclude from his gross income in 2013. Taxes help He will not enter his excluded income on Form 1040. Taxes help However, he will attach his completed Form 4563 to his Form 1040. Taxes help Illustrated Example of Form 5074 Tracy Grey is a U. Taxes help S. Taxes help citizen who is a self-employed fisheries consultant with a tax home in New York. Taxes help Her only income for 2013 was net self-employment income of $80,000. Taxes help Of the $80,000, $20,000 was from consulting work in Guam and the rest was earned in the United States. Taxes help Thinking she would owe tax to Guam on the $20,000, Tracy made estimated tax payments of $1,409 to Guam. Taxes help She was not a bona fide resident of Guam during 2013. Taxes help Tracy completes Form 1040 (not illustrated), reporting her worldwide income. Taxes help Because the adjusted gross income on her Form 1040 was $50,000 or more and at least $5,000 of her gross income is from Guam, Tracy must file Form 5074 with her Form 1040. Taxes help All amounts reported on Form 5074 are also reported on her Form 1040. Taxes help See U. Taxes help S. Taxes help Citizen or Resident Alien (Other Than a Bona Fide Resident of Guam) in chapter 3. Taxes help Completing Form 5074. Taxes help   Tracy enters her name and social security number at the top of the form. Taxes help Part I. Taxes help   On Form 5074 (see later), Tracy enters her self-employment income from Guam ($20,000) on line 6. Taxes help She has no other income from Guam, so the total on line 16 is $20,000. Taxes help Part II. Taxes help   Tracy's only adjustment in Part II is the deductible part of the self-employment tax on her net income earned in Guam. Taxes help She enters $1,413 on line 21 and line 28. Taxes help Her adjusted gross income on line 29 is $18,587. Taxes help Part III. Taxes help   Tracy made estimated tax payments of $1,409. Taxes help She enters this amount on line 30, and again on line 34 as the total payments. Taxes help Illustrated Example of Form 8689 Juan and Carla Moreno live and work in the United States. Taxes help In 2013, they received $14,400 in income from the rental of a condominium they own in the U. Taxes help S. Taxes help Virgin Islands (USVI). Taxes help The rental income was deposited in a bank in the USVI and they received $500 of interest on this income. Taxes help They were not bona fide residents of the USVI during the entire tax year. Taxes help The Morenos complete Form 1040 (not illustrated), reporting their income from all sources, including their interest income and the income and expenses from their USVI rental property (reported on Schedule E (Form 1040)). Taxes help The Morenos take the standard deduction for married filing jointly, both are under 65, and they have no dependents. Taxes help The Morenos also complete Form 8689 to determine how much of their U. Taxes help S. Taxes help tax shown on Form 1040, line 61 (with certain adjustments), must be paid to the U. Taxes help S. Taxes help Virgin Islands. Taxes help See U. Taxes help S. Taxes help Citizen or Resident Alien (Other Than a Bona Fide Resident of the USVI) in chapter 3. Taxes help The Morenos file their Form 1040, attaching Form 8689 and all other schedules, with the Internal Revenue Service. Taxes help At the same time, they send a copy of their Form 1040 with all attachments, including Form 8689, to the Virgin Islands Bureau of Internal Revenue. Taxes help The Virgin Islands Bureau of Internal Revenue will process this copy. Taxes help Completing Form 8689. Taxes help   Juan and Carla enter their names and Juan's social security number at the top of the form. Taxes help Part I. Taxes help   The Morenos enter their income from the USVI in Part I (see later). Taxes help The interest income is entered on line 2 and the net rental income of $6,200 ($14,400 of rental income minus $8,200 of rental expenses) is entered on line 11. Taxes help The Morenos' total USVI income of $6,700 is entered on line 16. Taxes help Part II. Taxes help   The Morenos have no adjustments to their USVI income, so they enter zero (-0-) on line 28, and $6,700 on line 29. Taxes help Their USVI adjusted gross income (AGI) is $6,700. Taxes help Part III. Taxes help   On line 30, the Morenos enter the amount from Form 1040, line 61 ($4,539). Taxes help Their Form 1040 does not show any entries required on line 31, so they leave that line blank and enter $4,539 on line 32. Taxes help   The Morenos enter their worldwide AGI, $54,901 (Form 1040, line 38), on line 33. Taxes help Next, they find what percentage of their AGI is from USVI sources ($6,700 ÷ $54,901 = 0. Taxes help 122) and enter that as a decimal on line 34. Taxes help They then apply that percentage to the U. Taxes help S. Taxes help tax entered on line 32 to find the amount of U. Taxes help S. Taxes help tax allocated to USVI income ($4,539 x 0. Taxes help 122 = $554), and enter that amount on line 35. Taxes help Part IV. Taxes help   Part IV is used to show payments of income tax to the USVI only. Taxes help The Morenos had no tax withheld by the U. Taxes help S. Taxes help Virgin Islands, but made estimated tax payments to the USVI of $400, which they entered on lines 37 and 39. Taxes help They include this amount ($400) in the total payments on Form 1040, line 72. Taxes help On the dotted line next to the entry space for line 72, they enter “Form 8689” and show the amount. Taxes help The Morenos do not complete Form 1116 because they receive credit on Form 1040, line 72, for the tax paid to the USVI. Taxes help   The income tax they owe to the USVI ($154) is shown on Form 8689, line 44. Taxes help They enter this amount on line 45. Taxes help They also include this additional amount ($154) on the dotted line next to the entry space and in the total on Form 1040, line 72. Taxes help The Morenos will pay their USVI tax at the same time they file the copy of their U. Taxes help S. Taxes help income tax return with the U. Taxes help S. Taxes help Virgin Islands. Taxes help This image is too large to be displayed in the current screen. Taxes help Please click the link to view the image. Taxes help Form 4563, page 1 for John Black This image is too large to be displayed in the current screen. Taxes help Please click the link to view the image. Taxes help Form 5074, for Tracy Grey This image is too large to be displayed in the current screen. Taxes help Please click the link to view the image. 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