rkj@ides.UUCP (Rick Janka) (03/06/86)
It is important to discriminate between "deductions" as reported on your 1040 (and worth $1040 each) and "exemptions" as reported on your W-4. I have heard the term allowance used instead of exemption, and it is perhaps more accurate. The number of exemptions is a personal choice, though the number of deductions one can claim is fixed by the feds. I recommend against using the little formula in computing the number of exemptions you claim. In my case, it resulted in over-withholding, though in some cases it may be accurate. I have found that different employers use different formulas in computing tax withheld. My past employer used the table as shown in IRS Pub 15. My current employer annualizes your current paycheck (thus to include any overtime, etc), multiplies each exemption by $1080, and uses the IRS tax formula ($x + y% for the amount over $z) to estimate a yearly tax, which is then divided by the number of pay periods. This method results in gross overwithholding since no other deductions one may have are considered, whereas I believe the Pub 15 tables include the "standard deduction." I have found that it is best to estimate your tax bill based on last years return, adjusted for any known differences, and divide by the number of pay periods, and use your employer's formula to derive the number of exemptions based on the tax you want withheld. You can claim any number of exemptions, though if you claim over 12 (I think), your employer notifies the IRS--no problem if you have nothing to hide. Rick Janka ihnp4!ides!rkj