Take control of your paycheck using the W-4

I’D LIKE TO LIVE AS A POOR MAN WITH LOTS OF MONEY.  PABLO PICASSO

I was inspired to write about the impact of the W-4 after speaking to  one of my SCORE clients via Skype today. I spent about 20 minutes explaining how fill out the form correctly. Here the reason: my client is going to expand her business and will hire employees in 2013. She wanted to know what forms she needed to have the future employees properly registered and documented. One of these forms was IRS Form W-4.

After our Skype session, she thanked me for explaining the form line by line and said I “made sense” of the form. At the end of the conversation, I was relieved that she understood an IRS form! But then I realized that other people could benefit from the explanation I gave to her.

By the end of the blog post, you will accomplish 3 things: 1). Download a W-4 and complete it with confidence.
2).Know your correct tax filing status.
3). Taking control of your net paycheck for the rest of 2013.

You can download the form here.   With the form printed, follow my instructions below to complete it.

Select your filing status or determine your filing status by using  the IRS application What is My Filing Status?.

Line A- Fill in “1” if your parent or other relative will not claim you on their tax return.

Line B- Fill in “1” if there is only one household income or the second income is less than $1500 in 2013.

Line C- Fill in “1” if you have a spouse that does not work.

Line D- Fill in the number of dependents that is supported by your income. You have to cover at least 50% of their living expenses. To find out  if someone is your dependent, use the IRS application Who Can I Claim as A Dependent?

Line E- Fill in “1” if you are filing Head of Household and have a qualified dependent.

Line F- Fill in “1” if you will pay at least $1900 for child or dependent care expenses.

Line G-This is most complicated line. It is broken down two steps

1.Count the number of children under 17 in the household and multiply by 2.
2.If you have 3-6 children, subtract 1 from the result of step 1. If you have 7 or more, subtract 2 from the result of step 1.

Taxpayer with 2 kids would enter “4” [=2 x2]. Taxpayer with 3 kids would enter “5” [(3×2)-1]. Taxpayer with 7 kids would enter “12” [(7×2)-2].

Line H- Total of lines A-G.

If you are having trouble with the directions above, I created an simple, yet interactive W-4 calculator. You can download it here. Or you can shoot me an email or call me. I can walk you through the process.

Last tax season, the average tax refund was about $2,900. By using the steps above to complete the W-4, you can bring additional funds into your household for the year. Stop giving the IRS a free loan on your money!What could you do with $2,900?

Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being fluent in English instead of “Accountant-ese”.

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