W4 Exemption Calculator
For 2013, several new payroll tax changes go into place. It is likely that most middle class people will see a slight decrease in their paychecks. Hence, it is more important that you review and adjust your W4 exemptions for 2013. If you have tax money refunded to you by the IRS or if you owe large sums to the IRS you may want to change your W4 exemptions for next year (2013).
When you increase your W4 exemptions, less taxes are withheld from your paycheck and you get more on your net pay. Similarly, if you decrease your W4 exemptions, more taxes are witheld from your paycheck and your net pay is reduced.
So lets say you are married, you are claiming 2 exemptions, one for yourself and another one for your spouse. Now lets say, you had a large mortgage and you pay a lot in interest, you may want to increase your exemptions to more than 2. This will increase your take home pay so that will lessen the burden of paying the mortgage every month.
Per the W4 Publication : “Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes”
How can you calculate your exemptions ?
There are online W4 calculators available that you can use to calculate the exemptions, this takes some of the pain away from using paper forms. Once you figure out the number of exemptions ideal for your situation, you should submit the exemptions to your employer. Contact the payroll or HR department at your place of work on where to submit the W4.
Here is an excellent W4 Exemption Calculator from Turbotax.
Does changing the exemption reduce or increase your overall taxes ?
NO. Changing the exemptions only impacts your take home pay. Your net taxes are not impacted. You will owe the same amount in taxes to the IRS whether or not you increase or decrease your exemptions. Only your net take home pay is impacted.
Is there a negative impact to changing your exemptions ?
If you increase your exemptions ( without corresponding deductions on your tax return), you could end up owing taxes to the IRS. This is not good. Uncle Sam likes refunding money to you, they usually do not like being owed money. Its a one way street folks. The best way is to calculate w4 exemptions that is ideally suited for you.
How do you change the exemptions for next year ?
You can ask your employer for the W4 form or you can download one from the IRS website. Then you can fill in the number of exemptions you calculated from the previous step. Also, the W4 form has a worksheet attached with it, which you can use to manually calculate the exemptions. can use to determine the exemptions.