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