Below is advice from tax attorney Mitchell R. Miller. (This information is also available at www.flippingburgersandbeyond.com along with other valuable free information.)
If you have a simple tax situation (see * below for who doesn’t have a simple tax situation) – do the easy part first: Fill in your name, address, and social security number on lines 1 and 2. Check the box in line 3 for single or married.
Only one thing remains – how much income tax withholding should be taken out of your check.
(A lot more than just income tax will be automatically taken out: there’ll be social security tax, state disability, medical insurance, 401(k) contribution and others, depending on your employer and state. You’ll undoubtedly be surprised – unpleasantly – when you see how much you actually end up with after taxes.)
Income tax withholding is expressed in terms of “allowances” as in “How many allowances are you claiming?”
The “allowances” are just a rough way of figuring what your income taxes will be for the year, and trying to get your withholding as close to that number as possible. (Some people like to get a big refund check when they file their return – it’s like forcing you to save – but that’s really a waste because you don’t earn any interest on that money. Instead, open a savings account and put in some money religiously, even if it’s only a few bucks every payday.)
Here’s how to calculate the correct number of allowances:
Step 1: Figure out how much you’re going to be making between now and the end of the calendar year.
Step 2: Ask your parents if they are claiming you as a dependent on their tax return.
Step 3: If you’re going to make less than $5,000 this year before taxes, write EXEMPT in line 7.
Step 4: If you’re going to make more than $5,000 this year before taxes and you are claimed as a dependent on your parents’ tax return, put a “1" on line 5.
Step 5: If you’re going to make less than $8,100 this year before taxes and you are not claimed as a dependent on your parents’ tax return, write EXEMPT in line 7.
Step 6: If you’re going to make more than $8,100 this year before taxes and you are not claimed as a dependent on your parents’ tax return, put a “1" on line 5.
Final step: Sign and date on the line just above 8 and give the form to your employer.
* You do not have a simple tax situation if you:
! have income from interest or dividends
! are married or supporting a child
! have your own business
! are a grad or professional school student and are receiving a stipend, or
! have anything at all complicated in your tax situation
In these cases you need to talk to an accountant. Or if you’re really ambitious, go to the IRS website – www.irs.gov – and download Publications 4 and/or 919 and use these publications to figure out your withholding.