dbmonkey[at]elvis.com (Dave Buck) wrote:

- quote -

Yes, some IRS Pubs make that statement. But IRS Pub 505
states ("Alternative method of figuring withholding
allowances", p.4):

"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. The method you use must be based on withholding
schedules [see IRS Pub 15], the tax rate schedules [see Form
1040-ES], and the 2004 Estimated Tax Worksheet in chapter 2
[of IRS Pub 505]. [...] You can use the number of
withholding allowances determined under an alternative
method rather than the number determined using the Form W-4
worksheets."

- quote -

This is like asking if you can exceed 70 MPH on Calif
highways.

Technically, you are wrong. You should only declare the
number of allowances that you are entitled to based on some
valid method of estimated your tax liability.

But the fact is, you can get away with it. As long as the
number you declare is less than some number (currently 11),
normally the IRS will not know about it. Moreover, you are
not required to show your worksheets (or however you
determined the number of allowances) to your employer.

However, there are some caveats. First, that number (11)
might change. The current number is noted on the top of
Form W-4.

Second, you sign Form W-4 under penalty of perjury. If you
arbitrarily declare so high a number of allowances that you
grossly underwithhold, and if the IRS requests your Form W-4
from your employer and determines that the number of
declared allowances is frivilous, you could be charged with
perjury.

(Okay, that is very very unlikely. Only a President who
lies about his sex life is charged with perjury :-> :-> .)

Finally, an employer is required not to use an "invalid"
W-4. A W-4 is considered invalid, for example, if "by the
date an employee gives it to you [the employer], he or she
indicates in any way that it is false". [IRS Pub 15.]

Some employers misinterpret that to mean that they can
reject a W-4 if the employer intuitively "knows" that the
number of allowances is inflated. For example, an employer
of my teenage son required that he declare no more than 1
allowance, since the employer knew that my son had no
dependents and no itemized deductions.

Of course, the employer was wrong. But my son made the
mistake of admitting that the number of allowances was
inflated ("false") to account for the fact that his annual
income would not come close to the annualization of the
income from his summer job.

Avoid the mistake of admitting that the W-4 is false,
as long as you use a valid method for determining the
number of allowances.

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Dave Buck wrote:

- quote -

The idea here is that you can't claim "exempt" and have
nothing withheld (unless you really qualify for that). You
have to be reasonable, else get hit with the penalty.

I have to wonder why in certain places such as California,
the allowance amount is capped at 10 before IRS review of
the W-4, regardless of the fact that much mortgage interest
(average debt: $300k) is about $30k, almost 10 allowances
by itself! [I negate the subtraction of the standard
deduction by the two allowances claimed for "self" and "only
one job." It's still 1+1+8 = 10.] Property taxes added to
it

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Dave Buck wrote:

- quote -

The worksheets allow you to take that into account. The
instructions also refer you to Pub 919, which gives you
worksheets for additional fine-tuning.

- quote -

Then you'd better remember to change your W-4 back at the
beginning of the next year.

Phoebe

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dbmonkey[at]elvis.com (Dave Buck) wrote:

- quote -

The worksheet has places for you to enter all these
adjustments to income that you expect to have. The result
should presumably be to compute the proper number of
allowances to reduce your withholding properly.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA

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I came across a brochure on the IRS web site that says this:

"You can claim the number of withholding allowances that you
are entitled to based on the Form W-4... worksheets. You can
claim less than you are entitled, but not more."

Huh? You can't claim more allowances than the worksheets
tell you to claim? What if you have a loss that will reduce
your tax liability and want to have less withheld as a
result? What if it's late April and you realize that you
(and your spouse) have already had enough withheld to cover
the entire year? I was always under the impression that a
taxpayer could write any number he wanted in line 5 of form
W-4. Am I wrong? Or is this IRS brochure wrong?

See the whole brochure here (The passage I quote is the
answer to the second "Frequently Asked Question" on the
second page): http://www.irs.gov/pub/irs-pdf/p4081.pdf

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