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H&r online 1. H&r online   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. H&r online Exceptions. H&r online Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. H&r online Identical wagers. H&r online Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. H&r online Underreported interest or dividends. H&r online 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. H&r online This chapter explains in detail the rules for withholding tax from each of these types of income. H&r online The discussion of salaries and wages includes an explanation of how to complete Form W-4. H&r online This chapter also covers backup withholding on interest, dividends, and other payments. H&r online 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. H&r online Salaries and Wages Income tax is withheld from the pay of most employees. H&r online Your pay includes your regular pay, bonuses, commissions, and vacation allowances. H&r online It also includes reimbursements and other expense allowances paid under a nonaccountable plan. H&r online See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. H&r online If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. H&r online This is explained under Exemption From Withholding , later. H&r online You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. H&r online 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. H&r online Military retirees. H&r online   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. H&r online Household workers. H&r online   If you are a household worker, you can ask your employer to withhold income tax from your pay. H&r online A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. H&r online   Tax is withheld only if you want it withheld and your employer agrees to withhold it. H&r online If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. H&r online Farmworkers. H&r online   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. H&r online Differential wage payments. H&r online   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. H&r online 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. H&r online The wages and withholding will be reported on Form W-2, Wage and Tax Statement. H&r online 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. H&r online The amount you earn in each payroll period. H&r online The information you give your employer on Form W-4. H&r online Form W-4 includes four types of information that your employer will use to figure your withholding. H&r online Whether to withhold at the single rate or at the lower married rate. H&r online How many withholding allowances you claim (each allowance reduces the amount withheld). H&r online Whether you want an additional amount withheld. H&r online Whether you are claiming an exemption from withholding in 2014. H&r online See Exemption From Withholding , later. H&r online Note. H&r online You must specify a filing status and a number of withholding allowances on Form W-4. H&r online You cannot specify only a dollar amount of withholding. H&r online New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. H&r online Your employer should have copies of the form. H&r online If you need to change the information later, you must fill out a new form. H&r online 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. H&r online You may be able to avoid overwithholding if your employer agrees to use the part-year method. H&r online See Part-Year Method , later, for more information. H&r online Employee also receiving pension income. H&r online   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. H&r online However, you can choose to split your withholding allowances between your pension and job in any manner. H&r online 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. H&r online When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. H&r online 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. H&r online See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. H&r online Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. H&r online See Table 1-1 for examples of personal and financial changes you should consider. H&r online Table 1-1. H&r online 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. H&r online 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. H&r online If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. H&r online You can get a blank Form W-4 from your employer or print the form from IRS. H&r online gov. H&r online You should try to have your withholding match your actual tax liability. H&r online 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. H&r online If too much tax is withheld, you will lose the use of that money until you get your refund. H&r online 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. H&r online See Table 1-1 for examples. H&r online Note. H&r online 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. H&r online 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. H&r online You should check your withholding when any of the following situations occur. H&r online You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. H&r online 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. H&r online There are changes in your life or financial situation that affect your tax liability. H&r online See Table 1-1. H&r online There are changes in the tax law that affect your tax liability. H&r online 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. H&r online You can also use the IRS Withholding calculator at www. H&r online irs. H&r online gov/individuals. H&r online If you use the worksheets and tables in this publication, follow these steps. H&r online Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. H&r online 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. H&r online 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. H&r online 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. H&r online How Do You Increase Your Withholding? There are two ways to increase your withholding. H&r online 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. H&r online Requesting an additional amount withheld. H&r online   You can request that an additional amount be withheld from each paycheck by following these steps. H&r online Complete Worksheets 1-5 and 1-7. H&r online 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. H&r online Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. H&r online This is the number of allowances you entered on the last Form W-4 you gave your employer. H&r online Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. H&r online Give your newly completed Form W-4 to your employer. H&r online   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. H&r online Example. H&r online 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). H&r online Steve's tax will be underwithheld by $800 ($4,316 − $3,516). H&r online His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. H&r online Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. H&r online 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. H&r online He gives the completed form to his employer. H&r online 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. H&r online If this is the case, you can increase your withholding for one or more of the jobs. H&r online   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. H&r online 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. H&r online This will give you the additional amount to enter on the Form W-4 you will file for that job. H&r online You need to give your employer a new Form W-4 for each job for which you are changing your withholding. H&r online Example. H&r online Meg Green works in a store and earns $46,000 a year. H&r online Her husband, John, works full-time in manufacturing and earns $68,000 a year. H&r online In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. H&r online They expect to file a joint income tax return. H&r online Meg and John complete Worksheets 1-5, 1-6, and 1-7. H&r online Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. H&r online They can divide the $4,459 any way they want. H&r online They can enter an additional amount on either of their Forms W-4, or divide it between them. H&r online 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. H&r online Both claim the same number of allowances as before. H&r online 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. H&r online There are two ways to do this. H&r online You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. H&r online You can claim only the number of allowances to which you are entitled. H&r online To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. H&r online Increasing the number of allowances. H&r online   Figure and increase the number of withholding allowances you can claim as follows. H&r online On a new Form W-4, complete the Personal Allowances Worksheet. H&r online If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. H&r online If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. H&r online If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. H&r online 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. H&r online 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. H&r online The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. H&r online Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. H&r online Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. H&r online Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. H&r online 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. H&r online If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. H&r online Example. H&r online Brett and Alyssa Davis are married and expect to file a joint return for 2014. H&r online Their expected taxable income from all sources is $68,000. H&r online They expect to have $15,900 of itemized deductions. H&r online Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. H&r online The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. H&r online Line 1, expected child and dependent care credit—$960. H&r online Line 9, expected adoption credit—$1,500. H&r online Line 10, total estimated tax credits—$2,460. H&r online Line 11. H&r online 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). H&r online The number to the right of this range is 6. H&r online 7. H&r online Line 12, multiply line 10 by line 11—$16,482. H&r online Then the Davis' complete the Form W-4 worksheets. H&r online 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. H&r online 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. H&r online 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. H&r online If the change is for next year, your new Form W-4 will not take effect until next year. H&r online 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). H&r online However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. H&r online You completed either form based on your projected income at that time. H&r online 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. H&r online 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. H&r online Start off with the Personal Allowances Worksheet. H&r online 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. H&r online The third worksheet is the most important for this situation. H&r online 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. H&r online 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. H&r online 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. H&r online It is your decision how to divide up your withholding allowances between these sources of income. H&r online 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. H&r online ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. H&r online 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. H&r online Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. H&r online Contact your pension provider and your employer's payroll department. H&r online And remember, this is not a final decision. H&r online 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. H&r online You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. H&r online You may need more tax withheld, or you may need less. H&r online Table 1-2. H&r online Tax Credits for 2014 For more information about the . H&r online . H&r online . H&r online See . H&r online . H&r online . H&r online 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. H&r online S. H&r online 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. H&r online Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. H&r online Everyone else must have tax withheld at the higher single rate. H&r online Single. H&r online   You must check the “Single” box if any of the following applies. H&r online You are single. H&r online If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. H&r online You are married, but neither you nor your spouse is a citizen or resident of the United States. H&r online 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. H&r online For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. H&r online Married. H&r online   You qualify to check the “Married” box if any of the following applies. H&r online You are married and neither you nor your spouse is a nonresident alien. H&r online You are considered married for the whole year even if your spouse died during the year. H&r online 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. H&r online For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. H&r online You expect to be able to file your return as a qualifying widow or widower. H&r online 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. H&r online 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. H&r online 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. H&r online Married, but withhold at higher single rate. H&r online   Some married people find that they do not have enough tax withheld at the married rate. H&r online This can happen, for example, when both spouses work. H&r online To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). H&r online Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. H&r online Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. H&r online You will have the most tax withheld if you claim “0” allowances. H&r online The number of allowances you can claim depends on the following factors. H&r online How many exemptions you can take on your tax return. H&r online Whether you have income from more than one job. H&r online What deductions, adjustments to income, and credits you expect to have for the year. H&r online Whether you will file as head of household. H&r online 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. H&r online Or, if married filing separately, whether or not your spouse also works. H&r online Form W-4 worksheets. H&r online    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. H&r online The worksheets are for your own records. H&r online Do not give them to your employer. H&r online   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. H&r online 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. H&r online Complete separate sets of worksheets only if you and your spouse will file separate returns. H&r online   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. H&r online 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. H&r online 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. H&r online   Complete all worksheets that apply to your situation. H&r online 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. H&r online Multiple jobs. H&r online   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. H&r online Then split your allowances between the Forms W-4 for each job. H&r online You cannot claim the same allowances with more than one employer at the same time. H&r online You can claim all your allowances with one employer and none with the other(s), or divide them any other way. H&r online Married individuals. H&r online   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. H&r online Use only one set of worksheets. H&r online You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. H&r online   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. H&r online Alternative method of figuring withholding allowances. H&r online   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. H&r online   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. H&r online 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. H&r online   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. H&r online You still must give your employer a Form W-4 claiming your withholding allowances. H&r online Employees who are not citizens or residents. H&r online   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. H&r online However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. H&r online S. H&r online national. H&r online It also does not apply if your spouse is a U. H&r online S. H&r online citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. H&r online Special rules apply to residents of South Korea and India. H&r online For more information, see Withholding From Compensation in chapter 8 of Publication 519. H&r online 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. H&r online Exemptions. H&r online Only one job. H&r online Head of household filing status. H&r online Child and dependent care credit. H&r online Child tax credit. H&r online Exemptions (worksheet lines A, C, and D). H&r online   You can claim one withholding allowance for each exemption you expect to claim on your tax return. H&r online Self. H&r online   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. H&r online 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. H&r online Spouse. H&r online   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. H&r online Do not claim this allowance if you and your spouse expect to file separate returns. H&r online Dependents. H&r online   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. H&r online Only one job (worksheet line B). H&r online    You can claim an additional withholding allowance if any of the following apply for 2014. H&r online You are single and you have only one job at a time. H&r online You are married, you have only one job at a time, and your spouse does not work. H&r online Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. H&r online If you qualify for this allowance, enter “1” on line B of the worksheet. H&r online Head of household filing status (worksheet line E). H&r online   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. H&r online For more information, see Publication 501. H&r online   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. H&r online Reduction of personal allowances. H&r online   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. H&r online 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. H&r online Worksheet 1-1. H&r online Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. H&r online Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. H&r online   2. H&r online Enter your expected AGI 2. H&r online       3. H&r online 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. H&r online       4. H&r online Subtract line 3 from line 2 4. H&r online       5. H&r online Divide line 4 by $125,000 ($62,500 if married filing separately). H&r online Enter the result as a decimal 5. H&r online   6. H&r online Multiply line 1 by line 5. H&r online If the result is not a whole number, increase it to the next higher whole number 6. H&r online   7. H&r online Subtract line 6 from line 1. H&r online 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. H&r online     Child and dependent care credit (worksheet line F). H&r online   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. H&r online 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. H&r online For more information, see Publication 503, Child and Dependent Care Expenses. H&r online   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. H&r online Child tax credit (worksheet line G). H&r online   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. H&r online Subtract “1” from that amount if you have three to six eligible children. H&r online Subtract “2” from that amount if you have seven or more eligible children. H&r online   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. H&r online   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. H&r online S. H&r online citizen, U. H&r online S. H&r online national, or U. H&r online S. H&r online resident alien, and Who will be claimed as a dependent on your return. H&r online If you are a U. H&r online S. H&r online citizen or U. H&r online S. H&r online national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. H&r online   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. H&r online   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. H&r online   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. H&r online Total personal allowances (worksheet line H). H&r online    Add lines A through G and enter the total on line H. H&r online 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. H&r online 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. H&r online Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. H&r online Use the amount of each item you reasonably can expect to show on your return. H&r online 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. H&r online Do not include any amount shown on your last tax return that has been disallowed by the IRS. H&r online Example. H&r online On June 30, 2013, you bought your first home. H&r online 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. H&r online 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. H&r online You can use $13,200 to figure the number of your withholding allowances for itemized deductions. H&r online Not itemizing deductions. H&r online   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. H&r online Itemized deductions (worksheet line 1). H&r online   Enter your estimated total itemized deductions on line 1 of the worksheet. H&r online   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. H&r online You normally claim these deductions on Schedule A of Form 1040. H&r online Medical and dental expenses that are more than 10% (7. H&r online 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). H&r online State and local income or property taxes. H&r online Deductible home mortgage interest. H&r online Investment interest up to net investment income. H&r online Charitable contributions. H&r online Casualty and theft losses that are more than $100 and 10% of your AGI. H&r online 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. H&r online 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. H&r online AGI. H&r online   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. H&r online Phaseout of itemized deductions. H&r online   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. H&r online    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. H&r online Worksheet 1-2. H&r online Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. H&r online Enter the estimated total of your itemized deductions 1. H&r online   2. H&r online Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. H&r online   3. H&r online Is the amount on line 2 less than the amount on line 1? ❑ No. H&r online Stop here. H&r online Your deduction is not limited. H&r online Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. H&r online  ❑ Yes. H&r online Subtract line 2 from line 1. H&r online 3. H&r online       4. H&r online Multiply line 3 by 80% (. H&r online 80) 4. H&r online       5. H&r online Enter your expected AGI 5. H&r online       6. H&r online 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. H&r online   7. H&r online Is the amount on line 6 less than the amount on line 5? ❑ No. H&r online Stop here. H&r online Your deduction is not limited. H&r online Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. H&r online  ❑ Yes. H&r online Subtract line 6 from line 5. H&r online 7. H&r online       8. H&r online Multiply line 7 by 3% (. H&r online 03) 8. H&r online       9. H&r online Enter the smaller of line 4 or line 8 9. H&r online     10. H&r online Subtract line 9 from line 1. H&r online Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. H&r online     Adjustments to income (worksheet line 4). H&r online   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. H&r online   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. H&r online These adjustments appear on page 1 of your Form 1040 or 1040A. H&r online Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. H&r online Net operating loss carryovers. H&r online Certain business expenses of reservists, performing artists, and fee-based government officials. H&r online Health savings account or medical savings account deduction. H&r online Certain moving expenses. H&r online Deduction for self-employment tax. H&r online Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. H&r online Self-employed health insurance deduction. H&r online Penalty on early withdrawal of savings. H&r online Alimony paid. H&r online IRA deduction. H&r online Student loan interest deduction. H&r online Jury duty pay given to your employer. H&r online Reforestation amortization and expenses. H&r online Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. H&r online Repayment of certain supplemental unemployment benefits. H&r online Contributions to IRC 501(c)(18)(D) pension plans. H&r online Contributions by certain chaplains to IRC 403(b) plans. H&r online Attorney fees and court costs for certain unlawful discrimination claims. H&r online Attorney fees and court costs for certain whistleblower awards. H&r online Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). H&r online Tax credits (worksheet line 5). H&r online   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). H&r online But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. H&r online   If you take the child and dependent care credit into account on line 5, do not use line F. H&r online If you take the child tax credit into account on line 5, do not use line G. H&r online   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. H&r online See the individual tax form instructions for more details. H&r online Foreign tax credit, except any credit that applies to wages not subject to U. H&r online S. H&r online income tax withholding because they are subject to income tax withholding by a foreign country. H&r online See Publication 514, Foreign Tax Credit for Individuals. H&r online Credit for the elderly or the disabled. H&r online See Publication 524, Credit for the Elderly or the Disabled. H&r online Education credits. H&r online See Publication 970, Tax Benefits for Education. H&r online Retirement savings contributions credit (saver's credit). H&r online See Publication 590. H&r online Mortgage interest credit. H&r online See Publication 530, Tax Information for Homeowners. H&r online Adoption credit. H&r online See the Instructions for Form 8839. H&r online Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. H&r online See the Instructions for Form 8801. H&r online General business credit. H&r online See the Instructions for Form 3800. H&r online Earned income credit. H&r online See Publication 596. H&r online Figuring line 5 entry. H&r online   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 . H&r online Example. H&r online You are married and expect to file a joint return for 2014. H&r online Your combined estimated wages are $68,000. H&r online 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). H&r online In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. H&r online 7. H&r online Multiply your total estimated tax credits of $2,660 by 6. H&r online 7. H&r online 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. H&r online 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. H&r online Nonwage income (worksheet line 6). H&r online   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). H&r online Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. H&r online   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. H&r online See Getting the Right Amount of Tax Withheld , later. H&r online Net deductions and adjustments (worksheet line 8). H&r online    If line 7 is less than $3,950, enter “0” on line 8. H&r online If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. H&r online Example. H&r online If line 7 is $5,200, $5,200 ÷ $3,950 = 1. H&r online 32. H&r online Drop the fraction (. H&r online 32) and enter “1” on line 8. H&r online 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). H&r online Reducing your allowances (worksheet lines 1-3). H&r online   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). H&r online 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). H&r online Enter that number on line 2. H&r online 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. H&r online ”    Table 1-3. H&r online Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. H&r online  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. H&r online 0 $42,001 – 98,000 6. H&r online 7 $98,001 – 180,000 4. H&r online 0 $180,001 – 270,000 3. H&r online 6 $270,001 – 440,000 3. H&r online 0 $440,001 – 490,000. H&r online . H&r online . H&r online . H&r online 2. H&r online 9 $490,001 and over 2. H&r online 5 b. H&r online  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. H&r online 0 $19,001 – 47,000 6. H&r online 7 $47,001 – 104,000 4. H&r online 0 $104,001 – 205,000 3. H&r online 6 $205,001 – 430,000 3. H&r online 0 $430,001 and over 2. H&r online 5 c. H&r online  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. H&r online 0 $30,001 – 66,000 6. H&r online 7 $66,001 – 150,000 4. H&r online 0 $150,001 – 235,000 3. H&r online 6 $235,001 – 430,000 3. H&r online 0 $430,001 – 460,000 2. H&r online 9 $460,001 and over 2. H&r online 5 d. H&r online  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. H&r online 0 $21,001 – 49,000 6. H&r online 7 $49,001 – 90,000 4. H&r online 0 $90,001 – 135,000 3. H&r online 6 $135,001 – 220,000 3. H&r online 0 $220,001 – 245,000 2. H&r online 9 $245,001 and over 2. H&r online 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. H&r online If line 1 is more than or equal to line 2, do not use the rest of the worksheet. H&r online   If line 1 is less than line 2, enter “0” on Form W-4, line 5. H&r online Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. H&r online Other amounts owed. H&r online   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. H&r online The total is the additional withholding needed for the year. H&r online 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. H&r online You accurately complete all the Form W-4 worksheets that apply to you. H&r online You give your employer a new Form W-4 when changes occur. H&r online But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. H&r online This is most likely to happen in the following situations. H&r online You are married and both you and your spouse work. H&r online You have more than one job at a time. H&r online You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. H&r online You will owe additional amounts with your return, such as self-employment tax. H&r online Your withholding is based on obsolete Form W-4 information for a substantial part of the year. H&r online Your earnings are more than $130,000 if you are single or $180,000 if you are married. H&r online You work only part of the year. H&r online You change the number of your withholding allowances during the year. H&r online You are subject to Additional Medicare Tax or Net Investment Income Tax. H&r online 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. H&r online 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. H&r online To be eligible for the part-year method, you must meet both of the following requirements. H&r online You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. H&r online You cannot use a fiscal year. H&r online You must not expect to be employed for more than 245 days during the year. H&r online 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. H&r online If you are temporarily laid off for 30 days or less, count those days too. H&r online If you are laid off for more than 30 days, do not count those days. H&r online You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. H&r online How to apply for the part-year method. H&r online   You must ask your employer in writing to use this method. H&r online The request must state all three of the following. H&r online The date of your last day of work for any prior employer during the current calendar year. H&r online That you do not expect to be employed more than 245 days during the current calendar year. H&r online That you use the calendar year as your tax year. H&r online 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. H&r online 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. H&r online You must ask your employer in writing to use this method. H&r online To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. H&r online ) since the beginning of the year. H&r online Aids for Figuring Your Withholding IRS Withholding Calculator. H&r online   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. H&r online Go to www. H&r online irs. H&r online gov/Individuals/IRS-Withholding-Calculator. H&r online It can help you determine the correct amount to be withheld any time during the year. H&r online Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. H&r online These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. H&r online New Form W-4. H&r online   When you start a new job, your employer should give you a Form W-4 to fill out. H&r online Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. H&r online   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. H&r online 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. H&r online No Form W-4. H&r online   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. H&r online Repaying withheld tax. H&r online   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. H&r online Your employer cannot repay any of the tax previously withheld. H&r online Instead, claim the full amount withheld when you file your tax return. H&r online   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. H&r online Your employer can repay the amount that was withheld incorrectly. H&r online 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. H&r online IRS review of your withholding. H&r online   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. H&r online Your employer may be required to send a copy of the Form W-4 to the IRS. H&r online There is a penalty for supplying false information on Form W-4. H&r online See Penalties , later. H&r online   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. H&r online   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. H&r online 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. H&r online Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. H&r online 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. H&r online   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. H&r online   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. H&r online 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. H&r online   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. H&r online Your employer must then withhold tax based on this new Form W-4. H&r online   Additional information is available at IRS. H&r online gov. H&r online Enter “withholding compliance questions” in the search box. H&r online Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. H&r online The exemption applies only to income tax, not to social security or Medicare tax. H&r online You can claim exemption from withholding for 2014 only if both of the following situations apply. H&r online For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. H&r online For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. H&r online Use Figure 1-A to help you decide whether you can claim exemption from withholding. H&r online 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. H&r online These situations are discussed later. H&r online Students. H&r online   If you are a student, you are not automatically exempt. H&r online If you work only part time or during the summer, you may qualify for exemption from withholding. H&r online Example 1. H&r online You are a high school student and expect to earn $2,500 from a summer job. H&r online 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. H&r online You worked last summer and had $375 federal income tax withheld from your pay. H&r online The entire $375 was refunded when you filed your 2013 return. H&r online Using Figure 1-A, you find that you can claim exemption from withholding. H&r online Please click here for the text description of the image. H&r online Figure 1-A: Exemption From Withholding on Form W-4 Example 2. H&r online 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. H&r online 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. H&r online    You may have to file a tax return, even if you are exempt from withholding. H&r online See Publication 501 to see whether you must file a return. H&r online    Age 65 or older or blind. H&r online 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. H&r online Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. H&r online Instead, see Itemizing deductions or claiming exemptions or credits, next. H&r online Itemizing deductions or claiming exemptions or credits. H&r online   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. H&r online You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. H&r online Claiming exemption from withholding. H&r online   To claim exemption, you must give your employer a Form W-4. H&r online Do not complete lines 5 and 6. H&r online Enter “Exempt” on line 7. H&r online   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. H&r online 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. H&r online   Your claim of exempt status may be reviewed by the IRS. H&r online See IRS review of your withholding , earlier. H&r online An exemption is good for only 1 year. H&r online   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. H&r online Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. H&r online The payer can figure withholding on supplemental wages using the same method used for your regular wages. H&r online 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. H&r online Expense allowances. H&r online   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. H&r online 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. H&r online   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. H&r online Accountable plan. H&r online   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. H&r online Your expenses must have a business connection. H&r online That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. H&r online You must adequately account to your employer for these expenses within a reasonable period of time. H&r online You must return any excess reimbursement or allowance within a reasonable period of time. H&r online    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. H&r online   The definition of reasonable period of time depends on the facts and circumstances of your situation. H&r online 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. H&r online You receive an advance within 30 days of the time you have an expense. H&r online You adequately account for your expenses within 60 days after they were paid or incurred. H&r online You return any excess reimbursement within 120 days after the expense was paid or incurred. H&r online 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. H&r online Nonaccountable plan. H&r online   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. H&r online For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. H&r online Penalties You may have to pay a penalty of $500 if both of the following apply. H&r online You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. H&r online You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. H&r online 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. H&r online The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. H&r online 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. H&r online A simple error or an honest mistake will not result in one of these penalties. H&r online 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. H&r online However, see chapter 4 for information on the penalty for underpaying your tax. H&r online Tips The tips you receive while working on your job are considered part of your pay. H&r online You must include your tips on your tax return on the same line as your regular pay. H&r online However, tax is not withheld directly from tip income, as it is from your regular pay. H&r online Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. H&r online Reporting tips to your employer. H&r online   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. H&r online The report is due by the 10th day of the following month. H&r online   If you have more than one job, make a separate report to each employer. H&r online Report only the tips you received while working for that employer, and only if they total $20 or more for the month. H&r online How employer figures amount to withhold. H&r online   The tips you report to your employer are counted as part of your income for the month you report them. H&r online Your employer can figure your withholding in either of two ways. H&r online By withholding at the regular rate on the sum of your pay plus your reported tips. H&r online By withholding at the regular rate on your pay plus a percentage of your reported tips. H&r online Not enough pay to cover taxes. H&r online   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. H&r online   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. H&r online If not enough tax is withheld, you may have to pay estimated tax. H&r online 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. H&r online Tips not reported to your employer. H&r online   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). H&r online Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. H&r online Allocated tips. H&r online   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. H&r online   Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. H&r online Withholding is based only on your pay plus your reported tips. H&r online Your employer should refund to you any incorrectly withheld tax. H&r online More information. H&r online   For more information on the reporting and withholding rules for tip income and on tip allocation, see Publi