The answer depends. It is best that you ask an experienced bankruptcy attorney this question. Below is some general information on how to maximize your take-home pay and reduce any amount of your tax refund you may be required to turn over to the bankruptcy trustee. Many clients live paycheck-to-paycheck and find themselves running out of money for necessities and the end of each month. Some clients also receive large tax refunds each year because they are over-withholding from their paychecks. This problem can be compounded if your trustee requests you turn over all or a portion of your tax refunds. Most courts allow you to keep your earned income credit. Some courts allow you to keep child tax credit. Many courts require that you turn over the tax refunds created by your over-withholding. Continue reading to learn how to adjust your withholdings so that you can increase your take-home pay and reduce that portion of your tax refunds created by over-withholding.
General Strategy For Filing Out a W-4 Form
- IF YOU OWED TAXES LAST YEAR – Use Form W-4 to increase your withholding. That’ll help you owe less (or nothing) next year.
- IF YOU GOT A REFUND LAST YEAR – You’re maybe giving the government a free loan, and could be needlessly living on less of your paycheck all year. Use Form W-4 to reduce your withholding. The more allowances you claim, the less tax will be taken out of your paycheck.
IRS Tax Withholding Estimator
The IRS tax withholding estimator helps you identify your tax withholding to make sure you have the right amount of tax withheld from your paycheck.
Alternative Ways to Calculate Your Withholding Allowance
The IRS also provides a formula to determine how many allowances taxpayers should claim. The personal allowances worksheet on page 3 of Form W-4 helps you figure out the correct number of allowances. To change your withholding, use your results from the tax withholding estimator or the personal allowances worksheet on page 3 of Form W-4 to complete a new Form W-4. Submit the completed form to your employer as soon as possible, because withholding takes place throughout the year.
Common Mistakes In Filling Out A W-4 Form
The number of people in your household or how many dependents you have is not the same as allowances. For example:
Single mother, $60,000 salary, two children under 17 years of age.
How many allowances should she claim?
The correct answer is d) 11. According to the personal allowance worksheet contained on page 3 of the W-4 form, the mother should claim 1 for herself, 1 because she will file as head of household, 1 because she is single and has only 1 job, and 4 for each child eligible for Child tax credit (4 x’s 2 = 8). Therefore the total number of allowances she should claim is 11 (1 + 1 + 1 + 4 + 4 = 11).
As you can see it is very easy to over-withhold by not claiming the correct number of allowances. If you have additional questions about your withholding, consult your employer or tax advisor.