Thank for taking my question and volunteering your time. I recently changed jobs. One of the drivers for the change was a substantial increase in my base salary to the tune of $43000/year. In my previous position I was listed as "married" and claimed 11 exemptions. In my current role (post divorce) I am listed on my pay stub as "single" with 3 exemptions (myself and 2 children). The net difference in my paycheks was about $800/check which I receive bi-monthly. Am I missing something or am I get slammed with taxes?? Is the difference that I'm now labeled as "single" and only claiming 3 exemptions? Can you suggest anything to increase my net pay? Increasing exemptions? Is there a maximum number of allowed exemptions and does the "single" label truly cause that much of an increase in my federal and s/l taxes each period? Thank you!
Answer Hi John,
Congratulations on the new job!
Yes, unfortunately with your increase in pay and the large reduction in exemptions, you could very well be having this much more in withholding tax. Remember, the withholding is calculated to approximate your tax due at the end of the year if you have no other income. If you withhold too little you may pay an interest penalty.
I have attached three links you may want to check out. The one from Turbo Tax is very good. I use Turbo Tax and recommend them. You can see from their chart that they estimate one exemption in your income and filing status is worth about $83 per month. Since you have 8 less exemptions that means 8 X 83 = $664 per month, most of your difference. In addition, filing as single is the highest tax rate. You should look into whether you qualify for Head of Household status (sounds like you do) which has a lower rate. See the definition in the IRS link.
Most importantly, sit down with your Human Resources person or payroll department and ask them to show you how your withholding is calculated, in particular if you need to switch to Head of Household status.
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