Whenever I meet a new client the first thing that I do is review their tax withholdings. Most taxpayers don’t have a clue of how to complete this form. My husband is included!  When we first started dating he always complained that he owed the IRS so much money every year. He said “Doctors just have to pay a lot of tax”.  When I took a gander at his W2, I immediately saw the problem.  This cray cray had been claiming nine allowances!  I told him that he was basically tax exempt. He wasn’t really paying ANY taxes.  He said that he completed the worksheet on the W4 and it said add one for yourself and one for this and one for that and by the end he had nine ones!

The W-4 is the name of an Internal Revenue Service (IRS) form employees must complete to let their employer know how much money to withhold from their paychecks for federal tax purposes. Accurately completing your W-4 can ensure you don’t have a big balance due at tax time.

While filling out the paperwork, you must strike a balance so as not to underpay or overpay throughout the year. Take out too much each month and you may end up with a huge tax refund. Huge tax refunds are not a good thing.  This means that you basically gave the government an interest free loan all year.  Wouldn’t you rather have access to your money each pay period when you need it? Take out too little and you could be stuck with a jumbo-size bill at the end of the year. Most employees end up either paying the IRS a little bit each paycheck or paying them a little more on Tax Day. The paying part is unavoidable – the way it gets done is more flexible than you’d think.

Claiming Allowances

The W-4 is based on the idea of “allowances,” sort of like the kind you got as a kid for doing your chores, only more likely to backfire if you milk it for all its worth. The more allowances you claim, the less money your employer will withhold for taxes. You get one allowance for yourself, one for your spouse and one per claimed dependent. You can claim additional allowances for things like itemizing deductions, filing a “head of household” return or requiring childcare expenses. After calculating allowances on a W-4 worksheet, you must provide some personal information and report your total allowances and additional withholding amounts on the form, tear off the certificate and provide it to your employer.  Be careful, if you are unsure about the number of allowances please consult with a tax accountant before you end up like Dr. Purselle!

Consolidating Those Allowances

The IRS recommends that if you work more than one job, or if you and your spouse both work, that you claim all your allowances on the W-4 for the highest-paying job and claim zero allowances on the W-4s for all other jobs. I can confirm that this is often the best way to pay just the right amount of taxes per paycheck and still receive the maximum amount of allowances you’re allotted.

Additional Withholding By Request

Requesting additional withholding… say what now? It’s not as crazy as it sounds, y’all. W-4s also help determine whether you need extra money withheld from your pay. You may be wondering why anybody would CHOOSE to have more money withheld. Two words: lump sum! The more that’s withheld, the smaller the potential end-of-the-year lump sum payment. If you work more than one job, have self-employment income or if your spouse earns a nice income too, the personal allowance worksheet will not incorporate this other income into your allowances and too little will be withheld. By voluntarily increasing your tax withholding on the W-4, you can avoid having to make an additional lump payment when you file.

Of course, if all these worksheets and potential withholdings start to overwhelm, you know I’m always here for you.


Buffie the Tax Heiress

Tax Accountant for Doctors in Atlanta