need a genius, lots of patience with a logical mind HELP!!!

[historian]

Ive been beating my head on the wall for hours over this. My daughter has been offered a job to start in nov at 160.000. In the meantime they offered her an intern sort of job during the summer for three months at 30.000. They are going to pay her with four separate checks but are going to treat each check as if they were taxing her at 1/12 of the 160.000 (her future salary). How many can she declare on her w4?? Not even the IRS could figure that one out and i don't even know how to approach this mathematically. Can anyone think of a formula or something which would help in this case????
I know what her taxes would be roughly on the 160.000 and on the 30.000 but that's all the info i have.

[Muttocracy]

1. what are 160.000 and 30.000 - equivalent annual salaries? nt

[stevedeshazer]

2. Recommended.

[Tangerine LaBamba]

3. What are

"160.000" and "30.000"?

She's going to work for three months and be paid with four separate checks?

Does this job - the fulltime one - include benefits?

Does the intern job include benefits?

And what, exactly, is the problem?

[historian]

7. shie is single

and is going to be taxed to death. She wants to reduce the witholding as much as possible to she can afford to live till her real salary kicki in but she doesnt want to overdo the exemptions and find out she went over the 10% witholding limits and be slapped with penalties.

[Tangerine LaBamba]

13. Is this in America?

Is she being paid in dollars?

Your response doesn't answer my questions, so I just don't understand your quandry.

If you're asking what I think you're asking, it's not going to make that big a difference, since she'll be liable for the same amount of taxes at the end of the year.

If that's what you're asking.

[historian]

18. yes

thats what im asking the problem is that if she over declares exemptions shell get zapped at the end of the year with penalties. If she only declares one on a real salary of 30000 but is taxed at the rate of someone earning 160000 she is doomed - there will be nothing left. It's an utterly stupid system and it serves one purpose only - to take away the initiative. Im old enough to remember when the Beatles moved here because they were being taxed at 90% in England!!

[elleng]

20. 'Doomed' is a bit of an overstatement, I think.

# exemptions may be changed during the year. And to suggest there will be 'nothing left' seems to misunderstand the process. In either case, at the end of the year, over or under will be remedied.

Doesn't the company have accountants who can help her think this thru?

[lumberjack_jeff]

26. Interesting.

One doesn't need to make big money to suddenly worry about the initiative-robbing effects of taxes, all that is needed is a promise.

Don't worry. If she gets the permanent gig, the government will want less than 25% of it.

I just thought of a really great scam. Hire a bunch of college kids to work for $30k/year by promising them really big money in the fall.

Set them down in front of a phone doing telemarketing.

But I can't afford to pay them anything. What to do?

Hey, I know! Tell them that I need to withhold from their pay the amount of taxes that would be due at the really big money rate, and since that number is greater than their "intern" salary, I get free labor!

Granted, I need to cough up the cash to the IRS in December that I "withheld" for all those interns I had last year, but ideally the cashflow will by now be coming in. And if not? It's a good thing I'm a smart lawyer and set up this scam as a corporation. I'll simply fold up the tent and start a new scam next year.

[pipoman]

30. Well, not really

there is no penalty for under paying on withholding, you just have to pay out of pocket when you file.

[Tangerine LaBamba]

34. Uh,

this isn't making a whole lot of sense, and, just so you know, the Beatles never became American citizens.

I wish you luck, but if you'd answered my questions, maybe I'd be able to help you. Now, not so much ..............

[MrModerate]

4. "Logically" it doesn't really matter . . . It'll all come out in the wash . . .

When she prepares her next return. Plug in a reasonable number of exemptions and don't worry.

[Ganja Ninja]

36. Exactly.

They'll withhold her money anyway no matter what. I don't know if she'll get a return or owe money at the end of the year so I would be prepared to pay just in case.

[northzax]

5. She can declare the number of dependents she has

Can't believe the IRS didn't tell you this. You get 1 for being yourself and a non-dependent, then you get one more for each additional dependent. It's not really that complicated.

[historian]

8. she doesnt have dependants

she is 24 and single.

[northzax]

16. then she claims "1" anything else would be dishonest

How was that hard? And for that kind of roll a year, she can hire a professional do to her taxes (and probably should)

So, 24 and pulling a buck sixty?she either graduated top of her class at one of a few law schools, is joining a bank or hedge fund two years ago, or she's on tv.

[crispini]

29. That's not true; you can claim however many you want to adjust your with-holding.

People adjust their claims on the number of dependents all the time; it's not dishonest to adjust your withholding as long as you do your taxes truthfully.

[pipoman]

31. Correct,

frankly the whole withholding is a scam IMHO anyway. It accomplishes 2 goals. 1. it insures that the .gov will get their money 2. if the masses had to write a check at the end of the year for their taxes there would be a revolt. It is a way to make paying painless and people don't realize how much they are actually paying, only how much they overpaid...the refund softens the blow.

[northzax]

38. As long as you pay estimated quarterly tax

You're fine.

[Chan790]

41. Several states...NY for one...

actually state in their tax code that it is illegal to under-withhold. I can over-withhold all I want but if I under-withhold I pay the highest state tax rate as penalty.

It happened to my roommate this year. She owes the state of NY $2000 because her employer didn't withhold correctly and she's a freelancer so she's a business of one in the eyes of the state.

[demobabe]

6. Figure the total $ for the year

I had a funky situation like this once, years back. Have her go to the company's Human Resources department. They can take out a set amount from a paycheck (percentage) - you don't have to do the calculation based on number of dependents because in this case, it wouldn't be accurate.

[HillbillyBob]

9. Not a genious, but have had 2 and 3 jobs at a time.

Claim the one excemption, at the end of the tax year add the total salary up.
Unless she has extraordinary medical bills, buys a house (car could be counted as a business expense if she has to drive on the job), has a child or other dependent to claim.

[Skip Intro]

10. What kind of job is it, if you don't mind me asking...?

[historian]

17. law

She has just graduated from Northwestern Law School in Chicago. Lots of new graduates got good job offers but they were rescinded due to the economy. That's a major complaint i have against too much schooling - how many pHd's are working in McDonald's?

[bananas]

25. Is this what you're looking for?

"6. You can also use the IRS Withholding Calculator to calculate your withholding allowances more exactly."
"8. If you claim more than 9 allowances, your employer may be required to send your W-4 to the IRS for review. Don't be alarmed. People with incomes over $100,000 and with substantial itemized deductions may need to claim over nine allowances."
http://taxes.about.com/od/preparingyourtaxes/ht/W4.htm

There's an embedded link to the IRS Withholding Calculator on that page.

[bananas]

27. I've heard about the job situation for law graduates.

They're getting job offers that don't start for many months.

[historian]

42. youre right

but they are already paying for her bar exam, gave her the summer job so she could earn enough to live on and told her she would start in November. I dont think they would have already spent all this money on her without intending to get something back. In fact, she and three others in her class are the only ones to have received offers that haven't been revoked. She is my daughter so i wish her well but the starting salaries for grads out of the top ten schools are ridiculous.

[jody]

11. Given the information you provided, IMO she should accept the "1/12 of the 160.000" which should

mean she has a nice tax refund next year.

That would be much easier than trying to figure to the nearest penny and risk having to pay some taxes next year because of underpayment.

[pipoman]

32. Depends on a person's financial status and ability to save..

I am of the belief that withholding is the absolute worst savings account in the history of savings accounts...in fact it is sort of reverse usury. Ideally a person wouldn't pay withholding, keep their own savings account (or other interest bearing account), then pay on the tax due date (collecting interest until the very last day).

[bluebellbaby]

12. You can claim as many exemptions you want on your W-2...but

When you file your taxes you can only claim what you legally are entitled to.

I worked for a company that paid on a bi-weekly basis..and this screwed up my deductions...I was getting taxed at a rate that was almost twice my annual salary...

Solution...I claimed 4 on my W-2's but when I filed I only claimed what I could...and I still got a tax refund...not a big one mind you...but I didn't owe anything...

[TahitiNut]

14. If it's a matter of maximizing take-home on the $30K until the $160K kicks in ...

... she can declare a higher number of exemptions JUST for the time she's getting the $30K and then CHANGE to a lower and more realistic number (I suggest ZERO) when she's paid at the $160K rate.

If cash flow is THAT much of a problem, she's playing with fire. It doesn't get easier to come up with the cash to pay taxes due when April 15th rolls around. Until she KNOWS she's covered at tax time -- after some experience supporting herself and paying taxes -- she's better off letting the IRS over-withhold somewhat.

It's MOTIVATION to file taxes early ... when there's a refund coming.

My advice: Don't play games trying to cut it close.

[Warpy]

15. Since there is absolutely no guarantee that the high paid job

will follow the internship, they need to withhold on that stipend as though it is the whole year's salary. If she does get the higher salaried job, then they can withhold at the higher rate.

It sounds like they're trying to pull a fast one, over withhold so they can earn interest on the money they take out of her paycheck over and above what should be taken out.

She's not going to have a whole lot left of that stipend if they withhold taxes as though she were getting $160K, which is probably the point.

My guess is to either have her claim half a dozen dependents on her internship W-2 and then go down to 1 if the high paid job materializes, or to tell them to withhold taxes on each amount separately and see what they say about that.

After all, nobody these days can really count on a job they have, let alone one that hasn't started yet.

[historian]

19. t

she isnt trying to pull anything. That is the only money she will have for living on until nov and she will need every penny. She's not extravagant; her car is 5 yrs old and she intends on keeping it till it dies; she doesnt buy 500 dollar shoes or anything like that - all she wants is to cover expenses.

[elleng]

21. She should let them know; they should understand.

If you don't mind, pm me with firm name. I studied law in Chicago, too.

[pipoman]

33. She/He isn't saying she is trying to pull anything,

she/he is saying that the employer may be trying to pull something. I don't get that read, this sounds like an issue you have developed on your own without their help.

[Warpy]

39. She's not, THEY are

Read the post again.

Thank you.

[elleng]

22. that's 30,000/month? or 10,000/month? or 30,000/year?

[historian]

43. 30000 for three months

paid for in 4 separate checks. I couldnt even get the irs to figure this one out. They have a specialized dept for unusual situations but they had never heard of this one.

[elleng]

50. So thats 10000 per month. = 120000 per year,

for summer intern. pretty good. Let the firm figure it out.

[lumberjack_jeff]

23. I need to paraphrase what you're asking.

She's been offered a 3-month internship at $30,000 per year, with the expectation that it will turn into a real job at $160,000/year. (red flag #1. Show me the bird in the hand, don't tell me about the one in the bush.)

The three month internship will be paid in four (?) separate checks, of presumably $1875. (red flag #2. One assumes that any organization which could credibly offer $160k wouldn't need to be so screwy with their payroll practices)

The employer isn't agreeable to processing a new W4 when the permanent job kicks in. (red flag #3)

If she were being paid monthly, the tax withheld on $2500 ($30,000/12) at the single rate with one deduction would be $226. If she was keeping the intern job for a whole year, this is a prudent level of withholding. In practice, she'd get most of it back at the end of the year.

Mathematically, to reduce the amount withheld from each check to zero, she would need to declare 6 deductions. (5) deductions gets $38.15 withheld each month, but anyone worth $160k/year should know the ramifications of under-withholding.

... but the patient, logically-minded folks will probably see this as more than a simple mathematical question. It doesn't make sense. I see a bait-and-switch in the works.

Below is a link to the current withholding tables.

http://map.ais.ucla.edu/portal/site/UCLA/menuitem.789d0eb6c76e7ef0d66b02ddf848344a/?vgnextoid=0161516ba5a51110VgnVCM100000dcd76180RCRD

Personally, I wouldn't relocate for a $30k, 3 month job; all that is being offered at this time. Especially not if they're hoping to get her to withhold the same amount of money as if she were already making the $160k ($3077 is the approximate withholding on a $13,333 salary)

[MercutioATC]

24. How fast is she going when she leaves the station?

[QueenOfCalifornia]

37. Best part of

this thread. :rofl:

[historian]

44. is that meant to be a snide remark?

Not a very good one. Subtelty is the key to good sarcasm

[MercutioATC]

51. Thanks for the lesson in humor.

I'll take it under advisement.

[Rabrrrrrr]

28. Why do you need the IRS to figure it out?

Why is this an issue? Why does it need to be approached mathematically?

Even considering that I still don't know precisely what you're asking about because of the way you wrote it, I don't think there's any kind of issue here. It'll all work out when she pays her taxes next year.

:shrug:

[historian]

46. she cant afford

to have too much deducted since she needs the money to live on till her job starts in nov. The firm is waiting for her to take the bar exam before going full time. At least that makes sense.

[Rabrrrrrr]

48. Oh, I see - have her claim zero dependants now, and then one when she starts the "real" job

Though, really, the stupid thing here is that the company wants to do the taxing like she's making more than she is.

That's a dumb company, and puts a stupid dent in her life that isn't needed.

The company should be able to just tax her as though she's making $10K a month when she's making that, and then tax her as though she's making $14K a month when she's making that.

It's not frakking rocket science.

Probably some idiot half-witted pencil pusher in accounting that doesn't know what she/he is doing pushing their incompetence on other people.

Especially considering that there is a possibility that she won't pass the bar exam, and thus will be (theoretically) at the lower salary even longer.

One stupid accountant can singlehandedly make a firm run stupidly.

[Marr]

35. This doesn't make any sense.

I've never heard of a legitimate business extending an offer of employment, and stipulating an (essentially unpaid) internship of several months ahead of the actual job. My first response would be that this is some sort of scam. It sounds like someone wants to pay a college student $900/month and has come up with a nice piece of bait.

If it's somehow legitimate, frankly, my advice to your daughter would be to tell them to call her when they have an actual job to offer.

[angstlessk]

40. if ONLY 30,000/12x4 annualized tax and annual tax in 160,000

This is what I have 'assumed' based on everything so far.

Her initial $30,000 per year: She is going to be paid at $30,000 per year based on 3 months work but paid in 4 installments, so I am assuming they are really paying her 30,000/12X4 which is a total of $10,000. The annualized tax for single @ $10,000 is $1,103. Per check it should be deducted at $275.75 each.

Her tax at $160,000 per year: She is being paid at $160,000 per year her income tax for one full year will be $38,778.25 or if paid once per month her deduction will be $3,231.50. In order for he to just pay the $275.75 per month she needs to reduce her tax by $2,955.75 and would have to claim 10 or 11 dependents to reduce it sufficiently ($3,500 per dependent per year). However, according to this link: http://www.irs.gov/pub/irs-pdf/p501.pdf , page 2 as a single person she is EXEMPT from even FILING taxes if her adjusted gross income is under $8,950, and since she has been a student and I also 'assume' she paid no taxes last year she can file EXEMPT STATUS...AND HAVE THEM SIMPLY DEDUCT AN ADDITIONAL $275.75 PER PAY CHECK?

GOOD LUCK!

[historian]

45. close

the 30000 is no0 yearly. Its for a specific period of three months. The 160000 begins after she has passed the bar and become an associate. Its too bizarre. But thanks for trying - you came close to the answer.

[Hawkowl]

47. No penalty for underpayment

First, as long as she pays at least the same amount of tax she paid last year, there will be no penalty for underpayment.

Second, she can change her W4 as often as necessary. So by a quick and dirty calculation, just have her claim twice the amount of exemptions for her first four paychecks as she normally would. Then have her change her withholding back to a normal 1 or 2 when starts on a permanent basis. This should get the right tax payment within a few hundreds of dollars.

Why? Assume a 15% marginal tax rate at 30K and roughly double that at $160K ( yes it's more like 36% but double will suffice).

[demwing]

49. If I understand correctly, she will earn 30K for 3 mos work

That's 10k per month, or 120k per year, which puts her in the same 28% tax bracket as her 160k offer.

They'll either tax her at the correct rate (28%) and it wont matter, or they'll divide 160k by 12 (13,333), tax that by 28% (3,733) and deduct that from each of her 4 checks.

The first way she gets 7,500 gross * .72 = 5400 per check, even steven at the EOY
The second way she gets 7,500 gross - 3734 = 3766 per check, fat little return at the EOY.

Difference of $1634 per check, or $6,536. In other word, 21K for three months work, or 15K, with a fat tax return in April of 2010. Either way it's good money for this (or any other) economy.

Why not declare 1 exemption? I'ts simple, low maintenance, and honest. I really believe this is not as complicated as you have made it out to be.