Adjusting Your Withholding

The purpose of this section is to explain how to adjust your withholding.

If you are not having enough tax withheld or you are having too much tax withheld, you should either increase or decrease your withholding.

How Do I Adjust My Withholding?

You increase or decrease your withholding by filling out a new Form W-4 and giving it to your employer. You can use the worksheets and information in this publication to help you complete Form W-4. You can complete the Form W-4 near the end of this publication and give it to your employer.

How Do I Increase My Withholding?

There are two ways to increase your withholding. You can:

1. Decrease the number of allowances you claim on line 5 of Form W-4, or
2. Enter an additional amount that you want withheld from each paycheck on line 6 of Form W-4 .

How to request an additional amount to be withheld. You can request that an additional amount be withheld from each paycheck by following these steps.

1. Complete Worksheets 1 and 2.
2. Complete a new Form W-4 if the amount on line 5 of Worksheet 2 is more than you want to have to pay or would cause a penalty when you file your tax return for 2002.
3. Enter on line 5 of the new Form W-4 the same number of withholding allowances your employer now uses for your withholding. This is the number of allowances you entered on the last Form W-4 you gave your employer.
4. Enter on line 6 of the new Form W-4 the amount from line 6 of Worksheet 2.
5. Give your newly completed Form W-4 to your employer.

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.

Example. Using Worksheets 1 and 2, Steve figures that his 2002 tax liability will be $5,000 and that his withholding for the year will be $4,700. Steve's tax will be underwithheld by $300 ($5,000 - $4,700). He will have to pay this amount when he files his 2002 tax return or he can increase his withholding. Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2002. Steve completes the form as before, and enters the same number of withholding allowances as before, then enters $6 ($300 × 50) on line 6 of the form. This is the additional amount to be withheld from his pay each payday. He gives the completed form to his employer.

What if I have more than one job or my spouse and I are a two-earner/two-job couple? You are 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). If this is the case, you can increase your withholding for one or more of the jobs.

You can apply the amount on line 5 of Worksheet 2 to only one job or divide it between the jobs any way you wish. 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 2002 for that job. This will give you the additional amount to enter on line 6 of the Form W-4 you will file for that job. You need to file a Form W-4 for each job for which you are changing your withholding.

Example. Meg Green works in a store. Her husband, John, works full time in manufacturing. They file a joint income tax return. When they fill out Worksheets 1 and 2, they find they will not have enough tax withheld. They can divide the amount on line 6 of Worksheet 2 any way they want. They can enter an additional amount on either of their Forms W-4, or divide it between them. They decide to have all of the additional amount from line 6 withheld from John's wages, so they enter on line 6 of his W-4 the number from line 6 of their completed Worksheet 2. Both claim the same number of allowances as before.

How Do I Decrease My Withholding?

Once you determine that you expect to have more tax withheld than your projected tax liability for 2002, you may be able to decrease your withholding by increasing the number of allowances that you claim on Form W-4.

You can only claim the number of allowances to which you are entitled. To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication.

How do I increase the number of allowances I can claim? You figure the number of withholding allowances you are entitled to claim as follows.

Figure 2

1. Complete Worksheets 1 and 2.
2. If your projected withholding is significantly more than your projected tax, get a new Form W-4 (or use the one in the back of this publication).
3. Complete the Personal Allowances Worksheet on Form W-4.
4. Use the remainder of the worksheets in this publication, as applicable.
5. Complete the Deductions and Adjustments Worksheet on Form W-4 if you plan to itemize deductions, claim adjustments to income, or claim tax credits from Worksheet 7 on your 2002 return.
6. Complete the Two-earner/two-job worksheet on Form W-4 if you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet.
7. Fill out Form W-4 itself.
8. Enter the number of allowances you are entitled to claim on line 5 of Form W-4.
9. If the number of allowances you are entitled to claim is different from the number you are already claiming, give the newly completed Form W-4 to your employer.

What if I can claim tax credits? Figure 2 shows tax credits you may be able to use to reduce your withholding. The Form W-4 Personal Allowances Worksheet only provides rough adjustments for the child and dependent care credit (line F) and the child tax credit (line G). Use Worksheet 7 to take these credits into account more accurately and also take other credits into account.

If you take the child and dependent care credit into account on Worksheet 7, enter -0- on line F of the Personal Allowances Worksheet. If you take the child tax credit into account on Worksheet 7, enter -0- on line G of the Personal Allowances Worksheet.

To figure the additional amount to add on line 5 of the Form W-4 Deductions and Adjustments Worksheet for your tax credits, complete Worksheet 7. Then complete the Form W-4 Deductions and Adjustments Worksheet and the rest of Form W-4.

Example. Brett and Alyssa are married and expect to file a joint return for 2001. Their combined estimated wages are $65,000. Their projected tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700.

They use Worksheet 7 to see whether they can convert their tax credits into additional allowances.

1. They enter their expected child and dependent care credit, $960, on line 1 of Worksheet 7.
2. They enter their expected mortgage interest credit, $1,700, on line 7 of Worksheet 7.
3. They add these credits and enter the total, $2,660, on line 9.
4. Because they are married filing a joint return, they use the table for married filing jointly.
5. They see that their combined estimated wages, $65,000, falls between $64,000 and $130,000, and that the number to the right of this range is 3.7.
6. They enter 3.7 on line 10.
7. They multiply line 9 by line 10 and enter the result, $9,842, on line 11.
8. They take the result on line 11, and add it to their other adjustments on line 5 of the Deductions and Adjustments Worksheet on Form W-4.
9. They finish filling out the Deductions and Adjustments Worksheet.
10. Because they chose to account for their child and dependent care credit this way, they enter -0- on line F of the Personal Allowances Worksheet.

When Will My 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.

If the change is for next year, your new Form W-4 will not take effect until next year.

Figure 3

Worksheets 1 and 2 - Projected Tax for 2001 and Projected Withholding for 2001

Worksheets 1a and 1b Tax Rate Schedules for S and HoH

Worksheets 1c and 1d Tax Rate Schedules for MFJ and MFS

Worksheets 3 and 4 - Itemized Deductions and Exemptions Phaseout

Worksheet 5 - Figuring Tax If You Expect to Have Capital Gain

Self-employment Tax

Standard Deduction Tables for 2001

Converting Credits To Withholding Allowances

Blank Form W-4 page 1

blank Form W-4 page 2

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