Posted on Mar 30, 2014
What are the exemptions on your LES and how do you use them?
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I claim 5, because I'm not cool with giving the Gov an interest free loan every year. I have better uses for that money.
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SFC (Join to see)
No, claiming a higher number just means they take less taxes out monthly. Rather than getting a larger return at the end of the year I would prefer that money in my bank account monthly. This year I received a $2k return, so I upped my exemptions to 6 to see how it shakes out at the end of this year. Ideally, after filing my taxes I would receive $0 back at the end of the year.
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Tax exemptions represent how much you pay in taxes monthly. You will have to pay the same amount in total taxes no matter what, so if you claim too many exemptions, you will have to end up paying the government money back come tax time... if you claim too few, then the government will owe you a refund come tax time. (It's more complicated than this, but this is the simple version that will apply to most people).
Exemptions are properly calculated based on your marital status and how many dependents you have. This is because the more dependents you have, the more tax breaks you are qualified for. If you claim too many exemptions then you are effectively underpaying taxes each month, and you will have to pay it back on tax day. If you underpay by too much, you can also get fined.
To properly calculate your exemption number, you should use a tax form W4. You only have have to do the first page to calculate the exemptions, and once you do it once, it becomes pretty easy. You can download it here:
Once calculated, you can change your exemptions through MyPay. Single individuals with no children typically have a "1" for exemptions. Those with dependents generally add 1 exemption for each dependent... but you should do the full form to do it properly. If a spouse earns income as well, it makes it a bit more complicated.
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COL Vincent Stoneking
To add to what MAJ Weiss stated,
IANATA: I am not a tax attorney. Don't make any tax decisions based on what some random guy on the internet said.
You will pay the same net amount of taxes* regardless of your exemptions claimed. Taxes are based on your income & deductions/credits.
Exemptions determine how much is withheld monthly. If you have "too few" exemptions, you will over withhold and get a refund when your taxes are calculated. If you have "too many", you will under withhold and have to pay a tax bill.
I would generally recommend that you have one "too many" exemptions - it gives you a small refund at tax time, which makes the task less hateful. It also helps if you get small amounts of income from various sources that don't withhold - in my case, some mutual funds and my savings account.
I have in the past under withheld, on the idea that I didn't want to give the gvt an interest-free loan, and quite honestly, I was living paycheck to paycheck at the time and taxes were a more distant problem than rent. Not the best approach, IMO.
* In certain situations, if you withhold too little, you can be hit with penalties and interest.
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SFC (Join to see)
The four pages show what each block means but it does not explain the principle of using exemptions.
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SGM Matthew Quick
The more exemptions one takes the less monthly taxes you pay each month...which calculates to less you get in returns.
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