Max Number of W-4 Allowances

Rental Property Investor · KY · Member since 2013 · 1k+ posts · 540 votes

What is the maximum number of allowances someone can take on their W-4? I've read articles that pretty much say between 0 and 4 depending on filing status, children, other jobs, etc. After completing a worksheet at one of the big tax sites, it was suggested I claim 10. Needless to say, I have too much withheld each year and end up getting a sizeable refund. I also have a lot of itemized deductions. Anyway, is there a "legal" limit to the maximum? I'm not looking at 10, but I currently have 2 and it doesn't seem to be enough. I'm tired of giving uncle sam an interest-free loan each year. Yes, I know, invest in real estate (working on it!), but other than that, open to feedback.

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David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

@Mark S.,

Since W2 employees get taxed BEFORE they get their money, you're kind of up a tree on this one.

You'd do better to find a way to pay yourself from your deals thru an S-Corp so you can control how much of it is actually salary (earned income) versus dividend (regular income). You'll take your big deductions at the S-Corp level and you pay yourself only what you need to to be legal.

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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
9y
@Mark S.,
Since W2 employees get taxed BEFORE they get their money, you're kind of up a tree on this one.
You'd do better to find a way to pay yourself from your deals thru an S-Corp so you can control how much of it is actually salary (earned income) versus dividend (regular income). You'll take your big deductions at the S-Corp level and you pay yourself only what you need to to be legal.
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Mark S.Pro Member
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Rental Property Investor · KY · Member since 2013 · 1k+ posts · 540 votes
9y
@David Dachtera, thanks for responding. My W-2 corporate gig is not in real estate. Sounds like there's not much I can do with W-4 allowances alone. Do you know if there is a max?
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Dave Toelkes
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
9y
The employer withholding tax tables are set up for up to 10 withholding allowances. If your employer's payroll software is not designed to compute withholding amounts for more than 10 allowances, it will probably just withhold for 10 even if you claimed more allowances.
Ask your employer's payroll department how many allowances you can claim to reduce your refund to an acceptable level.
The IRS does have a worksheet to compute the effect of the number of allowances you want to claim. From the worksheet, your payroll department should be able to see if your withholding drops to the level you desire without going so low that you are in danger of an under withholding penalty
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
Fill out the worksheet and use the number it creates. I used 10 for decades, but that created a YE payment, so I backed off to 7-8 to ensure I paid just enough.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
The IRS has a withholding calculator. Or have a good CPA do a tax plan/Estimate.
I did one last year where the client got a refund of $1. That's so close to perfect, I was so happy. That literally means you get to keep as much of your money, as possible, to use to invest, and ensure you won't owe money at year end.
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Jamie Engledow
Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
9y
I was not aware of a max, particularly because some taxpayers can claim that zero be witheld from their pay check. but your goal should not always be to max out.
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Mark S.Pro Member
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Rental Property Investor · KY · Member since 2013 · 1k+ posts · 540 votes
9y
I did the IRS calculator and it suggests claiming 15 allowances, so that's what I updated my W-4 to with my employer. Interested to see how this looks when it takes effect. Tired of seeing anywhere from 45-60% take home pay based off my gross. Yes, I have other deductions, but there are some months I pay five figures in tax withholdings and I'd rather have some of that money in my pocket NOW.
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Jason G.Pro Member
Rental Property Investor · Long Island, NY · Member since 2015 · 434 posts · 495 votes
7y
Originally posted by @Mark S.:

What is the maximum number of allowances someone can take on their W-4? I've read articles that pretty much say between 0 and 4 depending on filing status, children, other jobs, etc. After completing a worksheet at one of the big tax sites, it was suggested I claim 10. Needless to say, I have too much withheld each year and end up getting a sizeable refund. I also have a lot of itemized deductions. Anyway, is there a "legal" limit to the maximum? I'm not looking at 10, but I currently have 2 and it doesn't seem to be enough. I'm tired of giving uncle sam an interest-free loan each year. Yes, I know, invest in real estate (working on it!), but other than that, open to feedback.
I do five, typically end up getting a refund of around 2k. So possible to go over 4.
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Craig Jeppesen
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
7y
There is no max. You can claim as many defendants on your w4 as you want. You just have to pay 100% of your last years tax bill or 90% of this year or you get penalized. The w4 is just uncle sams best guess form to try to get it right. Unfortunately it doesn’t work for many tax situations which is why some people get huge refunds and some have to pay. If you don’t know how to estimate for a break even or small refund ask your CPA For help.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
7y
@Mark S.
Your question does not say anything about your investing, and it is important. It can change your taxable income upwards, downwards or not change at all.
If all you have is W2, then the IRS online calculator works just fine. Keep in mind that having a second W2 or a working spouse changes things very significantly. There's a full-page worksheet for multiple W2s and/or 2-income families that most people ignore when completing W4.
Itemized deductions changed very significantly with the tax reform, so you may get less of a refund for 2018 than you used to.
I highly recommend that you wait until you receive your W2 in January and run an estimate of your 2018 refund using 2018 tax software. Then you will have more reliable information for adjusting your W4.
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Alexander Ritchie
Member since 2018 · 19 posts · 1 vote
7y
there was a good article I read about this that helped me figure my allowances.
http://lifeoffimd.com/2018/03/14/the-w4-form-your-automatic-raise/
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Mark S.Pro Member
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Rental Property Investor · KY · Member since 2013 · 1k+ posts · 540 votes
7y
@Michael Plaks, or I can include this point in one of my upcoming quarterly calls with David. I’m one our your newest clients. :-)
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
7y
Originally posted by @Mark S.:

@Michael Plaks, or I can include this point in one of my upcoming quarterly calls with David. I’m one our your newest clients. :-)
Ha! REI is a small world. :) Welcome aboard!
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