W-4/ withholding question?
I am a student who is going to work this summer, part time for 4 months. I am estimating that my federal tax will be less than $1000. (Because of the standard deduction and personal exemption). Can I choose to withhold nothing on my W-4s without incurring a penalty? Also I am a resident of Oregon which has a state income tax. If I chose to withhold none (or very little) would I be subject to an underwithholding penalty even though I wouldn't be subject to a federal penalty (because tax was lower than $1000)
Public Comments
- It's your annual INCOME that you need to estimate - that is what determines your tax. www.paycheckcity.com has tools for that.
- My first question is: can your parents still claim you? Most students, even those who live on campus and work, can be claimed by their parents. If you are under 25, and a full-time student, I'd advise you to talk to your parents. If they are claiming you, you are not eligible to claim your own exemption on the return. This is called a "dependent's return". Many a college student has gotten an IRS letter because their parents claimed them, and gotten stuck with penalites and interest because the return was incorrect. Don't be one of those. You do not qualify to file a W4 with the "exempt" status. You would have to claim additional exemptions on the W4 in order to have less money withheld. This is legal, but not something I advise. You would not be assesed a penalty if you owe less than $1000 when you file your return. But I still caution you to be extremely careful when you consider having less withheld than you 'should'. You could wind up with an unexpected balance due that you are unable to pay. There are a lot of variables here. Your parents could claim you. There could be taxable grants that you aren't considering. The education credits might not work to your advantage. The laws could change. My advice is to file your W4 with the "Single" filing status, and zero exemptions, unless you know for certain that your parents will not claim you, and then you should go to one exemption. Two exemptions if you're feeling particularly lucky, or really really want very little withheld. Again, I wouldn't advise it. I am all for keeping as much money in your pocket as possible. I myself file an 'exempt' W4, because I qualify, and watch my income very carefully, in case I need to make a change partway through the year. But I have been doing taxes, and working at the same job, for 9 years. I know with a fair amount of certainty how it's going to work when I file. You're not in that position just yet. If you do this same job again next year, and know exactly what you're going to encounter, my advice might be different. But I'd hate to see you pick up some extra shifts, or get a bonus, and wind up in a bad spot. I'd fool even less with the state. State withholding tables leave even less room for error than do the Federal ones. I have many clients who, though they keep raising their state withholdings, are close to owing or do owe year after year. They might not be following through with my advice to change their W4s, but most of them are having state taxes withheld at the rate they 'should' be. It's just not worth it if you're not 100% sure. But, that's just MHO. I obviously don't take my own advice, but I see many clients every year who do, successfully. Study hard, work ethically, and laugh often! Blessings!
- You can only "choose to withhold nothing" by claiming "exempt" on your W-4 -- and you are only eligible to do that if you had no federal tax in 2007 and expect to have no federal tax in 2007. Note that is NOT "less than $1,000" of federal tax -- it's NO federal tax.
