Personal Investment & Financial Planning Q`s/Taxes on reg pay

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Question
John,

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.

https://www.1040.com/tax-guide/taxes-for-families/dependents-for-head-of-household-and-eic/

https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/Fatten-Your-Paycheck-and-Still-Get-a-Tax-Refund/INF12107.html

https://www.irs.gov/pub/irs-pdf/p501.pdf



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.

Hope this is helpful.  Good luck.  

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John Guilford Kerr, CFP, CFA

Expertise

I can answer questions related to personal financial planning, asset allocation, private equity investment analysis, fixed income, mutual fund, ETF, and stock questions, estate planning (basic), education planning, insurance planning, and business financial planning.

Experience

I have thirty-eight years of experience in finance, in the U.S. and internationally, for both public and private corporations. I have specialized in personal and small business financial planning and investment advisory services since 2005.------ - ten years commercial banking, New York, Paris, Houston, Charlotte, Atlanta---- - six years treasurer of a publicly traded health care company, Philadelphia----- - six years international project finance (Bechtel), San Francisco, Manila, London----- - five years head of international hotel development (Hyatt), Chicago---- - eleven years personal financial planning.----- Registered Investment Adviser, Hawaii---- FINRA General Securities Representative - Series 7---- FINRA Uniform Combined State Law - Series 66---- Resident Producer Insurance License, Hawaii-, Accident and Health or Sickness, Life, Variable Life and Variable Annuities

Organizations
CFA Institute of Hawaii---- Certified Fiancial Planner Board of Standards, Inc-----. National Association of Personal Financial Advisers----- Financial Planning Association----- National Association of Tax Professionals

Publications
Project Finance Yearbook - 1997 / 1998 "Manila Water & Sewerage System Concession"----- "The Road To Helsinki, An Analysis of European International Relations Leading to the Conference On Security and Cooperation in Europe"' published 2015.

Education/Credentials
Certified Financial Planner, Certified Financial Planner Board of Standards, Inc.---- Chartered Financial Analyst, CFA Institute----- Certificate in Financial Planning, Boston University---- Masters in Foreign Affairs - University of Virginia---- Bachelors of Arts, Government - Ohio University

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