How to get freedom from withholding?

Exemption From Withholding:

You must have withholding if any of these apply:

  • Your income for 2010 is higher than $950.
  • You have more than $300 of unearned income. Unearned income includes interest on savings accounts and mutual fund dividends.

If you cannot be claimed as a dependent, you can make much more and still be exempt from withholding.

If you owe no federal tax last year and anticipate owing nothing in the current year, you might be exempt from withholding. For 2010, a single person who is not a dependent can have as much as $9,350 in gross income before any tax is due.

If you earn $200 weekly or more and claim the exemption from withholding on your W-4, your employer might be asked to send the form to the IRS. If the IRS questions about the number of exemptions you claim, you will be required to justify your claim.

Working Couples and Withholding:

If both of you- you and your spouse are employed, outline the total allowances that you both are entitled to and divide those total allowances between you and your spouse. The W-4 has a special worksheet for 2-earning couples. It helps you and your spouse figure the number of allowances you should each claim based on each income.

Withholding and Retirement Income:

You can choose to have federal income taxes withheld from your:

  • Pension
  • Annuity
  • Traditional IRA withdrawals
  • Social Security benefits

With other retirement plans, you might be required to file a form with the payer to end the required withholding. If you do not complete the withholding forms for pension benefits, then taxes will be withheld as though you were married and claiming 3 exemptions. So, taxes will only be withheld if your pension is at least $2,080 per month.

You should re-evaluate each year to see if you want to have taxes withheld. Use Form W-4P to have taxes withheld from your pension, annuities, and IRAs.

Voluntary Withholding Request to have taxes withheld from Social Security. Choose any 1 of these rates for Social-Security withholding:

  • 7%, 10%, 15% or 25%

June 29 2011 02:11 pm | W4 Assistance and W4 tax Form

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