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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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I am single woman and my yearly gross income is $100,000 ...

Resolved Question:

I am single woman and my yearly gross income is $100,000 and will be increasing to $109,000 as of Feb 1st 2008. What are some ways that can help to reduce the tax on my paycheck. My monthly gross income is $8,358.92 and tax deducted is -$2,678.55.
Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

Your withholding is dome based on the W4 form that you filed with your employer.

If you filed as single with 2 allowances - your paycheck stub should look as

Monthly Gross Pay - $8,333.33
Federal Withholding - $1,622.69
Social Security - $516.67
Medicare - $120.83
Wisconsin - $522.49
Net Pay - $5,550.65

In general by increasing the number of allowances your federal and state income tax withholding will be less. However if at the tax time you will owe more than $1000 - the IRS may add penalties.

You may not change SS (6.2%) and Medicare(1.45%) taxes. As your wages will be increased - - SS tax are applied only to wages up to $102,000 (in 2008) - so your SS taxes in last month of 2008 will be less.

There are some standard ways to reduce tax pressure, while that depends on your specific situation:

  • you will likely use itemize deductions instead of standard (that is $5350 for single in 2007) - for most people the largest part of itemize deduction is a home mortgage - so consider to purchase a home if you do not owe it yet..
  • if your employer provide 401k plan - do maximum contribution - in 2008 a person will be allowed to make a maximum contribution of $16,000 and in 2009 $16,500 (additional contribution if you are 50+)
  • verify if your employer offers health flexible spending account
Customer: replied 8 years ago.
Reply to LEV's Post: You mentioned I can file with 2 allowances? How many allowances can I have and how can I determine number of allowances ? Is this different from exceptions? Please clarify what this means.

Expert:  Lev replied 8 years ago.

The term "exemptions" is used for personal exemptions on the tax form 1040 line 6 - - that number generally means a number of people in your family whom you are claiming personal exemptions ($3400 per person in 2007) on the line 42.

The term "allowances" is used to calculate withholding on the form W4 - . While there are some correlations (each allowance is equal $3400 in deductions) allowances include itemize deduction above standard amount, other credits and deductions, hear of household status, etc.

Sometimes people confused these two terms and use them interchangeable.

In your situation - as you are single and nobody claims you as a dependent - you will have 1 exemption on the line 6 and $3400 personal exemptions on line 42.

The number of allowance you will determine by using worksheet on the form W4 - one as nobody claims you as a dependent and one as you are using single filing status - total 2.

If you want to increase withholding - for instance if you have taxable interest income and bank doesn't withhold any taxes you may cover that by withholding from your wages - you may use zero allowances (that will not affect the number of exemptions on your tax return).

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