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Aarp Tax Aide

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

Aarp tax aide 15. Aarp tax aide   Examination and Appeal Procedures If your excise tax return is examined and you disagree with the findings, you can get information about audit and appeal procedures from Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund. Aarp tax aide An unagreed case involving an excise tax covered in this publication differs from other tax cases in that you can only contest it in court after payment of the tax by filing suit for a refund in the United States District Court or the United States Court of Federal Claims. Aarp tax aide Prev  Up  Next   Home   More Online Publications