How many exemptions to claim on W-4?

[bruins 14]

For those of you working in the US and your spouse is a nonresidential alien, how many exemptions do you claim on your W-4? I was thinking 3 for just my wife and I, since she doesn't work.

[longtruelove 11]

Really depends on you. Do you normally get a income tax refund when you file your taxes or do you normally owe taxes? I used to claim the absolute minimum exceptions so I would get a larger refund during taxes but then someone pointed out to me that technically you are lending the US government money with 0% interest. I changed my w4. My paycheck is larger but my refund is much smaller and I'm using the extra cash to invest in a 401k so im getting on avg of 10% back in interest.

[Ryan H 3,795]

Moved from IR-1/CR-1 Progress Reports to Tax & Finances During US Immigration forum.

[novedsac 355]

There's a worksheet accompanying the W4 to help you figure out the correct number of exemptions.

I usually do a quick calculation of my taxes in the fourth quarter of the year and adjust my W4 accordingly. My goal is to owe a tax which will be couple of hundred dollars below the penalty threshhold.

Planning for large tax refunds every year is poor financial planning, unless, perhaps, one is so exceptionally bad at it that letting Uncle Sam save for them is the only they could manage.

[Eric-Pris 1,602]

Planning for large tax refunds every year is poor financial planning, unless, perhaps, one is so exceptionally bad at it that letting Uncle Sam save for them is the only they could manage.

Why is it bad planning? And don't say because you are lending the government money interest-free? These days, the interest rate is pretty much ZERO. You're not giving up much.

This is more about discipline than opportunity cost. Most people, myself included , are not disciplined enough to not spend money that we should be saving, so that one big check a year is great. 5K is a nice vacation or a big purchase.

This is just a personal preference. TEHO.

[novedsac 355]

Why is it bad planning? And don't say because you are lending the government money interest-free? These days, the interest rate is pretty much ZERO. You're not giving up much.

This is more about discipline than opportunity cost. Most people, myself included , are not disciplined enough to not spend money that we should be saving, so that one big check a year is great. 5K is a nice vacation or a big purchase.

This is just a personal preference. TEHO.

The cost of lost opportunity. That money could be, and should be, in your pocket earlier to fund retirement, home improvements, etc.

I've seen people get tax refunds of $2k-10k (average refund in 2012 was $2985) - and that's just federal taxes - that's 200 per month on average, substantially more for some - over $400 in your example. Over time it can be considerable - perhaps a difference on the order of tens of thousands of dollars if invested and compounded repeatedly over 30+years.

Sure, many people do rely on the tax refund to save ... still doesn't mean that it's a good practice ... be better to learn finanicial discipline. Lack of discipline is an opportunity cost - perhaps the one which is the most valuable to most people. Incremental and disciplined savings over time is a proven method for producing one's nest egg.

Heck, one could probably have the money automatically taken from one's paycheck and put into a holiday savings account, investment account, etc. by the payroll department. Checking accounts can even be set up automatically to transfer amounts to another account for saving. There's lots of ways and tools out there rather than relying on the government to do it for you with absolutely no return other than principal.

Edited April 4, 2014 by novedsac

[bruins 14]

I'm considering claiming 3. 1 for me, 1 for being married with one income, and one for my wife.

[Anonymous885 44]

I have 3 as well.