Withholding in W4 - alimony/spousal support?

January 22, 2013 11:29 AM

What withholding should I put in my W4 if I'm paying alimony/spousal support?

I know you're not my Certified Public Accountant.

I'd use the IRS calculator, but it's currently down.

Let's say that I have an income of $160,000 and I need to payout 40% of my income in alimony/spousal support as per a recent divorce. There are no children or dependents.

How many allowances should I claim?

What additional amount should I have withheld from each paycheck?

I'd like to avoid having a massive refund next year - and also my cashflow is pretty screwed up right now.

My head is spinning so perhaps I'm not in the best state to research and calculate this myself.

Thanks.

posted by anonymous to Work & Money (6 answers total)

We're not your CPA, but why don't you just get one? Generally there aren't restrictions on when you can change your W4 withholding, so my advice would be to just put down anything right now (I'm assuming you're staring at a W4 change RIGHT THIS SECOND) and whenever you can get hold of a CPA to help you sort things out, find out from them what it really ought to be, and change it.
posted by Tomorrowful at 11:32 AM on January 22, 2013 [1 favorite]

There are many W-4 calculators on the internet.

Telling you how to use those calculators would require us knowing how much you pay in taxes (which is just roughly correlated to your income). If you don't know how much you will be paying in taxes, we can't help you - you (or an accountant) need to figure that out yourself. Otherwise, if you do know how much taxes you will be paying, set your W-4 allowance level such that you have approximately the amount of taxes you pay withheld. Ideally, you want to end each year with at most $1,000 taxes owed to avoid a underpayment penalty (but there are other ways to avoid the penalty; that's just the easiest).

Note that you can always change your W-4 throughout the year, so if you find your calculation is a bit high or low, you can correct correspondingly before the end of the year.
posted by saeculorum at 11:36 AM on January 22, 2013

Alimony is taxable to the recipient, but child support is taxable to the payer. The divorce decree should say who gets to claim your child(ren) which would inform this decision as well. A calculator is the best bet, and you can always readjust throughout the year if the IRS version gives you a wildly different number when it's back up.
posted by Nimmie Amee at 11:47 AM on January 22, 2013

Unless you really want to target your withholding perfectly, I don't think paying a CPA is worth it. (If you're earning 1 percent interest and the CPA charges $200, the CPA would have to correct a $20,000 withholding error to make it worth it.)

40 percent of $160,000 is $40,000. The 2013 personal exemption is $3,900. If you otherwise have a pretty simple tax sitution - e.g., no significant investment income or other source of income that wouldn't be subject to withholding - just add another 10 exemptions (for a total of 11). If you want to be a bit conservative, add 8.

As others said, you can always change that later. (In fact, if you're really having cash flow problems, you could reduce your withholding even further now and then up it later in the year, but that's not in general a good strategy.)

Also, there are some exceptions to the deducitibility of alimony. If you have questions on that, your divorce lawyer should be able to answer them.
posted by Mr.Know-it-some at 11:51 AM on January 22, 2013 [1 favorite]

If you're trying to dial in your W-4 settings so you have the most take-home pay without owing anything next April, use the employer instructions. (Publication 15, pages 35-37)

I use the previous year's Turbo Tax to figure the current years' taxes then use the employer percentage tables to get exemptions/allowances right. I examine the IRS forms it spits out and sometimes read the instructions for those to see if I agree with the program's calculations.
posted by morganw at 1:20 PM on January 22, 2013

Oh, and for California residents interested in how withholding is calculated, the employer's instructions aren't at the Franchise Tax Board, but at the Employment Development Department. 
CALIFORNIA WITHHOLDING SCHEDULES FOR 2013 (Revised due to Prop 30) [PDF]

The federal instructions for the withholding tables in the 2013 Publication 15 (Circular E) start on page 42 in the 2013, not 35.
posted by morganw at 9:19 AM on February 14, 2013