Expert: Helen P. O`Planick, EA - 12/1/2006

Question
I am a college senior studying accounting. I will not go into Tax, but i am now
looking at tax forms closely now that i'm about to get a real job.
My question has to do with allowances you get on the W-4 form because of
contributions you've made to a 401(k) as well as NY state allowances you can
also claim in the IT-2104 form (don't know if your from NY).
If i'm contributing $3300 to a 401(k) annually, does that mean i get another
personal allowance? (line 4 on page 2,assuming i'm not itemizing and
everything else on page 2 is zero, and im dividing 3300/3300 on line 8)
AND (sorry if this is running long), then can i also claim 3 state allowances on
my form IT-2104 (according to line 15, page 3, again assuming everything
else is zero, and im dividing 3300/1000). It just seems like too much to me
for just a 401k contribution, so i wanted to make sure i didn't end up
withholding too little and ending up with a tax bill i wasn't prepared for when
i handed in my return.
THANKS!!!

Answer
Federally, each exemption you claim on a W-4 is worth about $2500, so if you are putting away $3300, you would be fine taking that exemption.  

I have no idea about NY taxes, so I can't help you there.  

Another way to figure your withholding is to do a mock up tax return (using 2005 forms would work) using what you think your income will be in 2007. Work the return the whole way thru to the total tax line.  

Take the total tax line, divide it by the number of paychecks in a year and do the same with your taxable gross paycheck, and then look at pub 15 (at www.irs.gov).  Find your pay frequency, then your taxable gross amount.  Follow the column for your taxable gross until you come to a number close to your weekly (or bi-weekly or whatever) amount.  Look at the column that is in.  That is the amount of exemptions you can claim and break even.  If you want a refund amount, add that into your total tax line and then repeat the exercise.

Helen, EA in PA