Claim 0 Or 1 On Your W-4

As part of the American Recovery and Reinvestment Act if 2009 there is something called The Making Work Pay Tax Credit.  This tax credit is a refundable tax credit which is 6.2% of your earned income up to $400 for a working individual or $800 for a married couple filing a joint tax return.  If you make over $75,000 as an individual or $150,000 for your modified gross income you will have this tax credit phased out.  Your employer will usually handle this by changing your automatic withholding in spring of 2009.  This will provide taxpayers with increased take home pay stimulating the economy.  If you do not have taxes withheld by an employer you can claim The Making Work Pay Tax Credit on your 2009 tax return.

Something that might help you decide whether to claim 0 or 1 is to run some numbers through the IRS withholding calculator for 2010 which is published at http://www.irs.gov/individuals/page/0,,id=14806,00.html .  This withholding calculator is designed to help you not only decide whether to claim 0 or 1 but to see the impact of the Making Work Pay tax credit that is reducing the withholding on everyone’s paychecks.  Because less is withheld from each paycheck there is a possibility you could end up getting less of a refuld or paying in at the end of the year.  This is particularly likley if you have two jobs, or if you and your spouse both work but one is in a much higher tax bracket.  Using the witholding calculator may help with your decision whether to be claiming 0 or 1 on your W-4 form.

Many taxpayers wonder each year whether they should claim 0 or 1 on their W-4 form.  The W-4 form controls the amount of money withheld from your paycheck each period for taxes.  Commonly known as withholding whether you claim 0 or 1 on your W-4 is the largest factor in the amount of take home pay you receive in your paycheck.  Generally speaking you are notifying your employer of the number of planned deductions you will take when you do your taxes.  So if you claim 0 you are planning for no standard deduction thus higher taxes so your employer will withhold more from each paycheck.  The reality is that generally everyone claims themself so if you claim 0 you will likley receive a tax refund when you do you taxes.  If you claim 1 on your W-4 you are stating that you will take yourself as a deduction so your employer will withold less from each paycheck.  You’ll get a larger paycheck but may break even or pay in a little bit when you do your taxes.  Of course if you have kids you may claim more than 0 or 1 so generally the higher the number the less withheld from your paycheck.