19 Withholding Allowances?

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I got got done doing the IRS Withholding Calculator (http://www.irs.gov/individuals/article/0,,id=96196,00.html)

It say i should have 19 ALLOWANCES for the rest of this year!!!!!!!!!

I thought this had to be wrong so I filled it out 3 times to make sure i got the information right, and it was the same result 3 times.

I got back about $ 8000 return for the past 2 years mostly due to mortgage interest. I am scared to input that many allowances but I also don’t like the idea of giving the government an interest free loan i could be investing.

How should I handle this?

We are looking to become debt free. My husband and I trimmed our budget to where we have an extra $ 300 a month to pay off these debts. We are going to start sending the $ 300 plus regular payment to the lowest first then moving to the next and next with additional payments and finally paying off the mortgage. What I need help with is finding either a online calculator or some assistance on how to factor in the intrest rates and such to achieve this goal. I also would like to see what it would take to do it in 4 years. Any assistance with any of the questions is greatly appreciated. Here are our figures.

Credit Card- 8% Balance- 2800 Month Payment 150
Car Loan- 8% Balance- 13,900 Month Payment 356
Mortgage- 5.9% Balance- 114,500 Month Payment 915

These payments are not including the extra $ 300 we would be putting into it. Thank you so much for your help

  1. Reply
    v b
    February 15, 2011 at 1:27 am

    Read form 1040ES. Figure out your “safe harbor” and then go to http://www.paycheckcity.com and see if the 19 allowances works for you.

    The IRS doesn’t have a problem with big allowances as long as you really, honest to goodness don’t owe very much at tax time.

    Note the withholding calculator may not handle AMT very well.

  2. Reply
    February 15, 2011 at 2:00 am

    It is very possible that you did come out with the proper exemption amount–however, did you include possibly other types of income or, if married, your spouse’s income in the calculation. Also, keep in mind that your employer, by law, needs to forward your W-4 to the IRS because it exceeds the number of exemptions they allow for a taxpayer. The IRS wants to know if you could be not paying your fair share, in your case you probably are. Take care – Good luck – and I hope this helped.

  3. Reply
    Wally Z
    February 15, 2011 at 2:04 am

    It is possible if you have a large mortgage. Especially a newer one where almost all of your payment is interest. If your a bit afraid, drop it down to 15 or so. key thing is that you want to get $ 1,000 a month (for the 8 months left in the year) so it should be easy to check it on your next paycheck. Don’t forget to adjust it down a bit next year as you want to get a bit under 8K but for the entire year.

  4. Reply
    February 15, 2011 at 2:30 am

    It is possible that it is correct, monitor your paychecks after you make the change to make sure the total difference in withholding is what you will expect for the year.

    Employers do not have to send W4’s to the IRS if they have more 10 or more allowances on them. That rule does not exist any more.

  5. Reply
    February 15, 2011 at 2:31 am

    Do credit card first as it will let you “prepay”. Also, if you add $ 300 to the $ 150 balance, you will have it paid off in 5 or 6 months.

    Car loans may not allow prepayment without penalty. You will need to check that out on the loan. They are not as easy to apply principal to outstanding balance.

    Also, note that mortgages (and the car loan) may allow partial prepayments, but the monthly payment won’t be reduced for the loan. It simply reduces the principal balance with the effect that future payments are more principal and less interest. It can speed up the date at which your loan is paid off, but monthly payments won’t change in the meantime.

    I personally would invest the extra $ 300 a month (after I pay off the credit card debt). That is especially important if you have no cash reserves. Build up some cash reserves for yourself. Also, 30 year loans at under 6% are a great financing deal (plus mortgage interest is tax deductible) and you can in all likelihood beat that 6% return in the stock market over time.

  6. Reply
    February 15, 2011 at 2:47 am

    Bankrate has several calculators that can help you figure this out. I’ve attached the link at the bottom.

    You put in your debt, interest rates, and payments and it will do all the work for you. It gives a nice breakdown of how much of your money is being used for interest and how much for principal.

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