One Time Use W4

March 12, 2019 7:17 PM

At work, I am receiving a one time payout. I have the opportunity to maximize the money in my pocket, but I need help doing so. Please tell me how to fill out my W4 properly.

I generally get a refund at the end of the year, so I am not concerned about owing at the end of the year. I want to maximize the money in my pocket from this payment, but I cannot figure out the best way to do that. The advice I find is mostly how to exactly determine your taxes so you don't pay anything at the end of the year. I just want to know for this one payment.

How should I fill out my W4 to maximize my payout?

(My employer permits a single-use W4 for this purpose, so please don't worry that I am going to ruin my taxes for the rest of the year.)

Thank you in advance.

posted by China Grover to Work & Money (4 answers total)

Call yourself married and claim a large number of allowances (say 10). There's no potential negative impact to doing so. The worst that happens is the IRS rejects your W-4 and substitutes with a smaller number of allowances.
posted by saeculorum at 7:25 PM on March 12, 2019

I don't really understand your question. So long as you don't under withhold to a level that triggers a penalty, you can adjust your withholding to any level you want. You just need to take a guess at your full year average tax rate and the amount your normal paycheck withholds and then the math around the penalty and that's your minimum withholding. Then just finagle the W-4.

I have a kinda similar situation whereby I get a very large % of my comp in a single payment and left un adjusted my taxes would be way over withheld by our payroll provider. My firms payroll software allows me to just give them a % withholding rate.
posted by JPD at 11:31 PM on March 12, 2019

Married 10
posted by soelo at 7:26 AM on March 13, 2019

> Call yourself married and claim a large number of allowances (say 10). There's no potential negative impact to doing so.

This is bad advice. From Publication 505:

You may have to pay a penalty of $500 if both of the following apply:

• You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
• You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.

There also is a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.

The IRS may be unlikely to go after you if you don't end up owing at the end of the year, but outright lying about marital status is not a great idea and is not necessary to avoid excess withholding.

>The worst that happens is the IRS rejects your W-4

That's not how it works. Form W-4 goes directly to your employer; it does not go to the IRS (unless the IRS requests it from your employer because they suspect you are fraudulently underwithholding). Your employer uses Form W-4 to calculate how much to withhold from your paychecks. Again, quoting the IRS:

Employers are no longer required to routinely submit Forms W-4 to the IRS. However, in certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance.

>At work, I am receiving a one time payout.

What kind of one-time payout is this? Often bonuses and other supplemental wages (as opposed to regular wages) are taxed at a flat 22% (see Notice 1036). If your employer deems this payout to be supplemental wages and chooses to use the 22% method, then it won't matter at all what your Form W-4 says.
posted by Syllepsis at 10:47 PM on March 13, 2019