After tax pay for summer associates Forum

[bigben]

The problem is they tax you at rate based on 160K/year income instead of the 20-40 you will likely make for the year as an SA.

lol no they don't

...

Oh, you mean that they withhold as if you made that much all year. Not tax you.

[PKSebben]

The problem is they tax you at rate based on 160K/year income instead of the 20-40 you will likely make for the year as an SA.

lol no they don't

...

Oh, you mean that they withhold as if you made that much all year. Not tax you.

I love semantics!

[bigben]

I love semantics!

At first it really sounded like the guy meant tax.

[Manash]

Thanks NotMyRealName09.

[Ofta3184]

lol no they don't

If you fill out your W-4 on your first day of work as a summer and you follow the form's instructions, that is exactly what will happen. The form will tell you to put down a certain number of allowances, but the W-4 assumes you will be working for the rest of the year. You won't, though.

Here is an example of how to adjust your Summer Associate W-4 withholdings to minimize your federal refund and get more $$$ in each paycheck.

Assume you're single, and the summer associate job is the only job you will work all year. You have no kids, and get paid semi-monthly. Also assume you get paid $2000 / wk, and will be working 12 weeks.

You will gross $24,000 that summer. Lets say you will owe about $1760 in federal taxes, figured using a free online 2010 tax calculator - make sure you do this calculation correctly for 2011. (Gross income - Standard Deduction - Exemptions = Adjusted Gross Income. AGI x Tax Bracket = Federal Taxes owed).

If you run through the W-4 form, http://www.google.com/url?sa=t&source=w ... MDWjFVFBMQ , the form ends up telling you - a single person with no kids and no other jobs - to put down 2 allowances. But as will be shown, 2 allowances leads to massive overwithholding of your cash.

First, what is an allowance? An allowance is a set dollar figure used to reduce your gross income before calculating your withholding. See IRS Pub-15, page 35, table 5 at http://www.google.com/url?sa=t&source=w ... 3y9EIhYUcQ .

So in our example, 1 allowance equals $154.17.

THE MATH

Take your semimonthly gross wages, which for ease we'll say is $4000. Subtract the 2 allowances from that amount. $4000 - 154.17 - 154.17 = $3691.66. Now take that number and go to the tables in IRS Pub-15 to calculate your withholding.

In IRS Pub-15, on page 36 is TABLE 3 - the percentage method tables for semimonthly payroll periods for single people. Pluging $3691.66 into that table, you do this:

Since $3691.66 is greater than $3,571 but not over $7,354, the amount withheld will be $709.35 plus 28% of the excess over $3,571.

Soooo, $3691.66 - 3,571 = $120.66. Multiply by .28 to get $33.79 - this is the "28% of the excess."

Add the "excess" of $33.79 to $709.35, and we get $743.14. This is how much will be withheld from each paycheck with 2 allowances.

If you followed the form W-4 instructions and took only 2 allowances, over the summer the feds will withhold $4458.84 ($743.14 x 6 paychecks). BUT YOU ONLY WILL OWE $1760 or so come tax time!!!!!!!!! That means you'll get a $2698.84 tax refund. Thats straight cash that could be spent on top-shelf liquor all summer long.

So what to do? Play with the numbers! Run the analysis but add more allowances.

Lets try taking 9 allowances (10 or more your employer has to inform the IRS - not a big deal, but I prefer the IRS not put their eye on me.)

9 allowances equals (9 x 154.17 = $1387.53). Subtract from gross wages to get $2612.47.

Goto IRS Pub-15 page 36 table 3. Since $2612.47 is over $1525 but not over $3571, the amount withheld will be $197.85 plus 25% of the excess over $1525.

(($2612.47 - $1525) x .25) + $197.85 = $469.72. That is the amount withheld from each paycheck with 9 allowances. Taking 9 allowances instead of 2 means $273 more per paycheck. Your federal refund will be $1058 instead of $2698.84. Thats money in your pocket.

In our little example, the proper number of allowances is something like 13 or so. Taking 15 leads to underwithholding.

Make sense? (I disclaim inadvertant math / spelling errors, but the procedure is correct.)

Consider it a fun math game that puts hundreds more dollars in each paycheck, which you can then blow on booze or shoes depending on your preferences. Discover Scotch and other fine whiskeys. They're wonderful.

So did claiming 9 allowances work out for everyone? Im thinking about changing my 2 allowances to 9

[Pete Venkman]

Trying to resurrect this thread. Are people going with 9 allowances as a safe number?

[BuckinghamB]

Just use the irs withholding calculator and ask your firm if the calculator's number of allowances is cool with them

[lonerider]

.

[Anonymous User]

I've never had to use anything other than the standard 1 or 2 withholding allowances, but the IRS calculator says I should claim 24 for my SA. Stupid question, but where on the W-4 do I put the 24? Seems like Line 5 is the place. Can someone confirm?

[boushi]

I put 35 exemptions and I still ended up getting a ~$700 federal refund but I'm married so others' mileage may vary.

[mr.hands]

So if I mistakenly only took 1 or 2, will I still get it all back via refund?

[AllDangle]

Tag

[Danger Zone]

I've never had to use anything other than the standard 1 or 2 withholding allowances, but the IRS calculator says I should claim 24 for my SA. Stupid question, but where on the W-4 do I put the 24? Seems like Line 5 is the place. Can someone confirm?

Correct, line 5. You can skip the worksheet that it says you keep for your own records.

Mr hands, yes you'll get a big refund. But wouldn't you rather have it now?

[Anonymous User]

I've never had to use anything other than the standard 1 or 2 withholding allowances, but the IRS calculator says I should claim 24 for my SA. Stupid question, but where on the W-4 do I put the 24? Seems like Line 5 is the place. Can someone confirm?

Correct, line 5. You can skip the worksheet that it says you keep for your own records.

Good man. Thanks, DZ!

[arrowkarrow]

Just a heads up, I was looking into this and it seems as if the employer no longer has to submit the W-4 to the IRS if you claim more than 10 allowances. From the IRS:

Q1: In the past, as an employer, I was required to submit all Forms W-4 that claimed complete exemption from withholding (when $200 or more in weekly wages were regularly expected) or claimed more than 10 allowances. What Forms W-4 do I now have to submit to the IRS?
A1: Employers are no longer required to routinely submit Forms W-4 to the IRS. However, in certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance.

https://www.irs.gov/businesses/small-bu ... nd-answers

I am just going to claim the amount of allowances that the IRS calculator produced, which is more than 10.

[jkpolk]

Just remember to switch back to your normal amount of allowances/exemptions after the stub year. Otherwise you might wind up with a pretty surprising tax bill after full year 1.