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IRS.gov Website
Publication 505
taxmap/pubs/p505-001.htm#en_us_publink10007179

Chapter 1
Tax Withholding for 2012(p3)

taxmap/pubs/p505-001.htm#en_us_publink1000270282Introduction

This chapter discusses income tax withholding on: This chapter explains in detail the rules for withholding tax from each of these types of income. The discussion of salaries and wages includes an explanation of how to complete Form W-4.
This chapter also covers backup withholding on interest, dividends, and other payments.

taxmap/pubs/p505-001.htm#TXMP51eabf7f

Useful items

You may want to see:


Form (and Instructions)
 W-4: Employee's Withholding Allowance Certificate
 W-4P: Withholding Certificate for Pension or Annuity Payments
 W-4S: Request for Federal Income Tax Withholding From Sick Pay
 W-4V: Voluntary Withholding Request
See chapter 5 of this publication for information about getting these publications and forms.
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Salaries and Wages(p3)

rule
Income tax is withheld from the pay of most employees. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It also includes reimbursements and other expense allowances paid under a nonaccountable plan. See Supplemental Wages, later, for definitions of accountable and nonaccountable plans.
If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. This is explained under Exemption From Withholding, later.
You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2.
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Military retirees.(p3)

rule
Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes.
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Household workers.(p3)

rule
If you are a household worker, you can ask your employer to withhold income tax from your pay. A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.
Tax is withheld only if you want it withheld and your employer agrees to withhold it. If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2.
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Farmworkers.(p3)

rule
Generally, income tax is withheld from your cash wages for work on a farm unless your employer both:
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Differential wage payments. (p3)

rule
When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. The wages and withholding will be reported on Form W-2, Wage and Tax Statement.
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Determining Amount of Tax
Withheld Using Form W-4(p3)

rule
The amount of income tax your employer withholds from your regular pay depends on two things.
Form W-4 includes four types of information that your employer will use to figure your withholding.
Note.You must specify a filing status and a number of withholding allowances on Form W-4. You cannot specify only a dollar amount of withholding.
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New Job(p3)

rule
When you start a new job, you must fill out a Form W-4 and give it to your employer. Your employer should have copies of the form. If you need to change the information later, you must fill out a new form.
If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid overwithholding if your employer agrees to use the part-year method. See Part-Year Method, later for more information.
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Employee also receiving pension income. (p3)

rule
If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. However, you can choose to split your withholding allowances between your pension and job in any manner.
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Changing Your Withholding(p3)

rule
During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances.
If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4), later.
Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. See Table 1-1 for examples of personal and financial changes you should consider.

Table 1-1. Personal and Financial Changes

FactorExamples
Lifestyle changeMarriage
Divorce
Birth or adoption of child
Loss of an exemption
Purchase of a new home
Retirement
Filing chapter 11 bankruptcy
Wage incomeYou or your spouse start or stop working, or start or stop a second job
Change in the amount of taxable income not subject to withholdingInterest income
Dividends
Capital gains
Self-employment income
IRA (including certain Roth
 IRA) distributions
Change in the amount of adjustments to incomeIRA deduction
Student loan interest
 deduction
Alimony expense
Change in the amount of itemized deductions or tax creditsMedical expenses
Taxes
Interest expense
Gifts to charity
Job expenses
Dependent care expenses
Education credit
Child tax credit
Earned income credit
If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method, explained later.
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Checking Your Withholding(p4)

rule
After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. You can get a blank Form W-4 from your employer or print the form from IRS.gov.
You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund. Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. See Table 1-1 for examples.
Note.You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax.
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When Should You Check Your Withholding?(p4)

rule
The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld.
You should check your withholding when any of the following situations occur.
  1. You receive a paycheck stub (statement) covering a full pay period in 2012, showing tax withheld based on 2012 tax rates.
  2. You prepare your 2011 tax return and get a:
    1. Big refund, or
    2. Balance due that is:
      1. More than you can comfortably pay, or
      2. Subject to a penalty.
  3. There are changes in your life or financial situation that affect your tax liability. See Table 1-1 on this page.
  4. There are changes in the tax law that affect your tax liability.
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How Do You Check Your Withholding?(p4)

rule
You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. You can also use the IRS Withholding calculator at www.irs.gov/individuals. If you use the worksheets and tables in this publication, follow these steps.
  1. Fill out Worksheet 1-3 to project your total federal income tax liability for 2012.
  2. Fill out Worksheet 1-5 to project your total federal withholding for 2012 and compare that with your projected tax liability from Worksheet 1-3.
If you are not having enough tax withheld, line 6 of Worksheet 1-5 will show you how much more to have withheld each payday. For ways to increase the amount of tax withheld see How Do You Increase Your Withholding?, later.
If line 5 of Worksheet 1-5 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday.
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How Do You Increase Your Withholding?(p4)

rule
There are two ways to increase your withholding. You can:
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Requesting an additional amount withheld.(p4)

rule
You can request that an additional amount be withheld from each paycheck by following these steps.
  1. Complete Worksheets 1-3 and 1-5.
  2. Complete a new Form W-4 if the amount on Worksheet 1-5, line 5:
    1. Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or
    2. Would cause you to pay a penalty when you file your tax return for 2012.
  3. Enter on your new Form W-4, line 5, the same number of withholding allowances your employer now uses for your withholding. This is the number of allowances you entered on the last Form W-4 you gave your employer.
  4. Enter on your new Form W-4, line 6, the amount from Worksheet 1-5, line 6.
  5. Give your newly completed Form W-4 to your employer.
If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year.
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Example.(p4)

Early in 2012, Steve Miller used Worksheets 1-3, 1-4, and 1-5 to project his 2012 tax liability ($4,316) and his withholding for the year ($3,516). Steve's tax will be underwithheld by $800 ($4,316 − $3,516). His choices are to pay this amount when he files his 2012 tax return, make estimated tax payments, or increase his withholding now. Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2012. Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on line 6 of the form. This is the additional amount to be withheld from his pay each payday. He gives the completed form to his employer.
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What if I have more than one job or my spouse also has a job?(p4)

rule
You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. If this is the case, you can increase your withholding for one or more of the jobs.
You can apply the amount on Worksheet 1-5, line 5, to only one job or divide it between the jobs any way you wish. For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2012 for that job. This will give you the additional amount to enter on line 6 of the Form W-4 you will file for that job. You need to give your employer a new Form W-4 for each job for which you are changing your withholding.
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Example.(p4)

Meg Green works in a store and earns $46,000 a year. Her husband, John, works full-time in manufacturing and earns $68,000 a year. In 2012, they will also have $184 in taxable interest and $1,000 of other taxable income. They expect to file a joint income tax return. Meg and John complete Worksheets 1-3, 1-4, and 1-5. Line 5 of Worksheet 1-5 shows that they will owe an additional $4,459 after subtracting their withholding for the year. They can divide the $4,459 any way they want. They can enter an additional amount on either of their Forms W-4, or divide it between them. They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on line 6 of his Form W-4. Both claim the same number of allowances as before.
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How Do You Decrease Your Withholding?(p5)

rule
If your completed Worksheets 1-3 and 1-5 show that you may have more tax withheld than your projected tax liability for 2012, you may be able to decrease your withholding. There are two ways to do this. You can:
EIC
You can claim only the number of allowances to which you are entitled. To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication.
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Increasing the number of allowances.(p5)

rule
Figure and increase the number of withholding allowances you can claim as follows.
  1. On a new Form W-4, complete the Personal Allowances Worksheet.
  2. If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later.
  3. If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet.
  4. If the number of allowances you can claim on Form W-4, line 5, is different from the number you already are claiming, give the newly completed Form W-4 to your employer.
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Converting Credits to Withholding Allowances(p5)

rule
Table 1-2, later, shows many of the tax credits you may be able to use to decrease your withholding.
Note.Legislation during 2012 may extend several tax credits that expired for 2012. For more details, see www.irs.gov/pub505.
The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit (line F) and the child tax credit (line G). Complete Worksheet 1-6 to figure these credits more accurately and also take other credits into account.
Include the amount from line 12 of Worksheet 1-6 in the total on line 5 of the Deductions and Adjustments Worksheet. Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4.
EIC
If you take the child and dependent care credit into account on Worksheet 1-6, enter -0- on line F of the Personal Allowances Worksheet. If you take the child tax credit into account on Worksheet 1-6 enter -0- on line G of the Personal Allowances Worksheet.
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Example.(p5)

Brett and Alyssa Davis are married and expect to file a joint return for 2012. Their expected taxable income from all sources is $68,000. They expect to have $15,900 of itemized deductions. Their projected tax credits include a child and dependent care credit of $960 and a residential energy credit of $1,500.
The Davis' complete Worksheet 1-6, as follows, to see whether they can convert their tax credits into additional withholding allowances.
  1. Line 1, expected child and dependent care credit—$960.
  2. Line 9, expected residential energy efficiency property credit—$1,500.
  3. Line 10, total estimated tax credits—$2,460.
  4. Line 11. Their combined taxable income from all sources, $68,000, falls between $40,001 and $95,000 on the table for married filing jointly or qualifying widow(er). The number to the right of this range is 6.7.
  5. Line 12, multiply line 10 by line 11—$16,482.
Then the Davis' complete the Form W-4 worksheets.
  1. Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H.
  2. They take the result on line 12 of Worksheet 1-6, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets.
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When Will Your New W-4 Go Into Effect?(p5)

rule
If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4.
If the change is for next year, your new Form W-4 will not take effect until next year.
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Retirees Returning to the Workforce(p5)

rule
When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. You completed either form based on your projected income at that time. Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income.
The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. Start off with the Personal Allowances Worksheet. Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet.
The third worksheet is the most important for this situation. Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck.
Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. It is your decision how to divide up your withholding allowances between these sources of income. For example, you may want to "take home" most of your weekly paycheck to use as spending money and use your monthly pension to "pay the bills." In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4.
There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances.
And remember, this is not a final decision. If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above.
You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. You may need more tax withheld, or you may need less.
taxmap/pubs/p505-001.htm#en_us_publink1000269024

Table 1-2. Tax Credits for 2012
For more information about the ...See ...
Adoption creditForm 8839 instructions
Alternative fuel vehicle refueling property credit Form 8911, Part III, instructions
Child and dependent care expenses, credit forPublication 503, Child and Dependent Care Expenses
Child tax credit (including additional child tax credit)Instructions for Form 1040 or Form 1040A
Earned income credit Publication 596, Earned Income Credit
Education credits Publication 970, Tax Benefits for Education
Elderly or the disabled, credit for thePublication 524, Credit for the Elderly or the Disabled
Foreign tax credit (except any credit that applies to wages not subject to U.S. income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals
General business creditForm 3800, General Business Credit
Health coverage tax credit Form 8885 instructions
Mortgage interest creditPublication 530, Tax Information for First-Time Homeowners
Qualified electric vehicle passive activity creditForm 8834, Part II, instructions
Qualified plug-in electric drive motor vehicle creditForm 8936 instructions
Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year)Form 8801 instructions
Retirement savings contributions credit (saver's credit)Publication 590, Individual Retirement Arrangements (IRAs)
Tax credit bonds, credit to holders ofForm 8912 instructions


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Completing Form W-4
and Worksheets(p6)

rule
When reading the following discussion, you may find it helpful to refer to the filled-in Form W-4, later.
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Marital Status
(Line 3 of Form W-4)(p6)

rule
There is a lower withholding rate for people who qualify to check the "Married" box on line 3 of Form W-4. Everyone else must have tax withheld at the higher single rate.
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Single.(p6)

rule
You must check the "Single" box if any of the following applies.
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Married.(p6)

rule
You qualify to check the "Married" box if any of the following applies.
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Married, but withhold at higher single rate.(p6)

rule
Some married people find that they do not have enough tax withheld at the married rate. This can happen, for example, when both spouses work. To avoid this, you can check the "Married, but withhold at higher Single rate" box (even if you qualify for the married rate). Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later.
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Withholding Allowances
(Line 5 of Form W-4)(p6)

rule
The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim "0" allowances. The number of allowances you can claim depends on the following factors. If you are married, it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4.
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Form W-4 worksheets.(p6)

rule
Form W-4 has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Do not give them to your employer.
Complete only one set of Form W-4 worksheets, no matter how many jobs you have. If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. Complete separate sets of worksheets only if you and your spouse will file separate returns.
If you are not exempt from withholding (see Exemption From Withholding, later), complete the Personal Allowances Worksheet on page 1 of the form. Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments.
Complete all worksheets that apply to your situation. The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year.
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Multiple jobs.(p7)
If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Then split your allowances between the Forms W-4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other(s), or divide them any other way.
taxmap/pubs/p505-001.htm#en_us_publink10007203
Married individuals.(p7)
If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Use only one set of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.
If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits.
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Alternative method of figuring withholding allowances.(p7)

rule
You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances.
The method you use must be based on withholding schedules, the tax rate schedules, and the 2012 Estimated Tax Worksheet in chapter 2. It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4.
You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. You still must give your employer a Form W-4 claiming your withholding allowances.
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Employees who are not citizens or residents.(p7)

rule
If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U.S. national. It also does not apply if your spouse is a U.S. citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. Special rules apply to residents of South Korea and India. For more information, see Withholding From Compensation in chapter 8 of Publication 519.
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Personal Allowances Worksheet(p7)

rule
Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply.
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Exemptions (worksheet lines A, C, and D).(p7)

rule
You can claim one withholding allowance for each exemption you expect to claim on your tax return.
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Self.(p7)
You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption.
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Spouse.(p7)
You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Do not claim this allowance if you and your spouse expect to file separate returns.
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Dependents.(p7)
You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return.
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Only one job (worksheet line B).(p7)

rule
You can claim an additional withholding allowance if any of the following apply for 2012. If you qualify for this allowance, enter "1" on line B of the worksheet.
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Head of household filing status (worksheet line E).(p7)

rule
Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: For more information, see Publication 501.
If you expect to file as head of household on your 2012 tax return, enter "1" on line E of the worksheet.
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Child and dependent care credit (worksheet line F).(p7)

rule
Enter "1" on line F if you expect to claim a credit for at least $1,900 of qualifying child or dependent care expenses on your 2012 return. Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. For more information, see Publication 503, Child and Dependent Care Expenses.
Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits, later.
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Child tax credit (worksheet line G).(p7)

rule
If your total income will be less than $61,000 ($90,000 if married), enter "2" on line G for each eligible child. Subtract "1" from that amount if you have three to seven eligible children. Subtract "2" from that amount if you have eight or more eligible children.
If your total income will be between $61,000 and $84,000 ($90,000 and $119,000 if married), enter "1" on line G for each eligible child.
An eligible child is any child:If you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test.
Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2011 instructions for Form 1040 or 1040A, line 6c.
For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A.
Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits, later.
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Total personal allowances (worksheet line H).(p7)

rule
Add lines A through G and enter the total on line H. If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4.
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Deductions and
Adjustments Worksheet(p7)

rule
Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2012 tax return and you want to reduce your withholding. Also, complete this worksheet when you have changes to those items to see if you need to change your withholding.
Use the amount of each item you reasonably can expect to show on your return. However, do not use more than: Do not include any amount shown on your last tax return that has been disallowed by the IRS.
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Example.(p8)

On June 30, 2011, you bought your first home. On your 2011 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2012 return. You can use $13,200 to figure the number of your withholding allowances for itemized deductions.
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Not itemizing deductions.(p8)

rule
If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter "0" on line 3 of the worksheet.
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Itemized deductions (worksheet line 1).(p8)

rule
Enter your estimated total itemized deductions on line 1 of the worksheet.
Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2012. You normally claim these deductions on Schedule A of Form 1040.
  1. Medical and dental expenses that are more than 7.5% of your 2012 AGI (defined under AGI, later).
  2. State and local income or property taxes.
  3. Deductible home mortgage interest.
  4. Investment interest up to net investment income.
  5. Charitable contributions.
  6. Casualty and theft losses that are more than $100 and 10% of your AGI.
  7. Fully deductible miscellaneous itemized deductions, including:
    1. Impairment-related work expenses of persons with disabilities,
    2. Federal estate tax on income in respect of a decedent,
    3. Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it,
    4. Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death,
    5. Gambling losses up to the amount of gambling winnings reported on your return, and
    6. Casualty and theft losses from
      income-producing property.
  8. Other miscellaneous itemized deductions that are more than 2% of your AGI, including:
    1. Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies,
    2. Safe deposit box rental,
    3. Tax counsel and assistance, and
    4. Certain fees paid to an IRA trustee or custodian.
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AGI.(p8)
For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2012 minus any estimated adjustments to income (discussed below) that you include on line 4 of the Deductions and Adjustments Worksheet.
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Adjustments to income (worksheet line 4).(p8)

rule
Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet.
You can take the following adjustments to income into account when figuring additional withholding allowances for 2012. These adjustments appear on page 1 of your Form 1040 or 1040A.
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Tax credits (worksheet line 5).(p8)

rule
Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet.
If you take the child and dependent care credit into account on line 5, do not use line F. If you take the child tax credit into account on line 5, do not use line G.
In addition to the child and dependent care credit and the child tax credit, you can take into account the following credits.
Note.Legislation during 2012 may extend several tax credits that expired for 2012. For more details, see www.irs.gov/pub505.
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Figuring line 5 entry. (p8)
To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3.
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Example.(p8)

You are married and expect to file a joint return for 2012. Your combined estimated wages are $68,000. Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660).
In Table 1-3, the number corresponding to your combined estimated wages ($40,001 – $95,000) is 6.7. Multiply your total estimated tax credits of $2,660 by 6.7. Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet.
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Nonwage income (worksheet line 6).(p8)

rule
Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income.
If line 6 is more than line 5, you may not have enough income tax withheld from your wages. See Getting the Right Amount of Tax Withheld, later.
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Net deductions and adjustments (worksheet line 8).(p9)

rule
If line 7 is less than $3,800, enter "0" on line 8. If line 7 is $3,800 or more, divide it by $3,800, drop any fraction, and enter the result on line 8.
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Example. (p9)

If line 7 is $5,200, $5,200 ÷ $3,800 = 1.37. Drop the fraction (.37) and enter "1" on line 8.
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Two-Earners/Multiple Jobs Worksheet(p9)

rule
Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $40,000 ($10,000 if married).
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Reducing your allowances (worksheet lines 1–3).(p9)

rule
On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). Enter that number on line 2. However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than "3."
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Table 1-3. Deductions and Adjustments Worksheet (Form W-4)—Line 5

a. Married Filing Jointly or Qualifying Widow(er)
If combined income from all sources is:  Multiply credits by:
$0 – 40,00010.0
$40,001 – 95,0006.7
$95,001 – 168,0004.0
$168,001 – 250,0003.6
$250,001 – 430,0003.0
$430,001 and over2.8
b. Single
If combined income from all sources is: Multiply credits by:
$0 – 18,00010.0
$18,001 – 45,0006.7
$45,001 – 97,0004.0
$97,001 – 195,0003.6
$195,001 – 420,0003.0
$420,001 and over2.8
c. Head of Household
If combined income from all sources is: Multiply credits by:
$0 – 28,00010.0
$28,001 – 64,0006.7
$64,001 – 142,0004.0
$142,001 – 225,0003.6
$225,001 – 430,0003.0
$430,001 and over2.8
d. Married Filing Separately 
If combined income from all sources is: Multiply credits by:
$0 – 20,00010.0
$20,001 – 47,5006.7
$47,501 – 84,0004.0
$84,001 – 125,0003.6
$125,001 – 215,0003.0
$215,001 and over2.8
Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. If line 1 is more than or equal to line 2, do not use the rest of the worksheet.
If line 1 is less than line 2, enter "0" on Form W-4, line 5. Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding.
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Other amounts owed.(p9)

rule
If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. The total is the additional withholding needed for the year.
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Illustrated Example—Form W-4(p9)

rule
Joyce Green works in a bookstore and expects to earn about $13,300. Her husband, John, works full time at the Acme Corporation, where his expected pay is $48,500. They file a joint income tax return and claim exemptions for their two children. Because they file jointly, they use only one set of Form W-4 worksheets to figure the number of withholding allowances. The Greens' worksheets and John's Form W-4 are shown in Figure 1-A.
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Personal Allowances Worksheet.(p9)

rule
On this worksheet, John and Joyce claim allowances for themselves and their children by entering "1" on line A, "1" on line C, and "2" on line D. Because both John and Joyce will receive wages of more than $1,500, they are not entitled to the additional withholding allowance on line B. The Greens expect to have child and dependent care expenses of $2,400. They enter "1" on line F of the worksheet. Because they are married, their total income will be less than $90,000, and they have two eligible children, they enter "4" on line G.
They enter their total personal allowances, "9," on line H.
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Deductions and Adjustments Worksheet.(p9)

rule
Because they plan to itemize deductions and claim adjustments to income, the Greens use this worksheet to see whether they are entitled to additional allowances.
The Greens' estimated itemized deductions total $12,800, which they enter on line 1 of the worksheet. Because they will file a joint return, they enter $11,900 on line 2. They subtract $11,900 from $12,800 and enter the result, $900, on line 3.
The Greens expect to have an adjustment to income of $4,000 for their deductible IRA contributions. They do not expect to have any other adjustments to income. They enter $4,000 on line 4.
They add line 3 and line 4 and enter the total, $4,900, on line 5.
Joyce and John expect to receive $600 in interest and dividend income during the year. They enter $600 on line 6 and subtract line 6 from line 5. They enter the result, $4,300, on line 7. They divide line 7 by $3,800, and drop the fraction to determine one additional allowance. They enter "1" on line 8.
The Greens enter "9" (the number from line H of the Personal Allowances Worksheet) on line 9 and add it to line 8. They enter "10" on line 10.
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Two-Earners/Multiple Jobs Worksheet.(p9)

rule
The Greens use this worksheet because they both work and together earn over $10,000. They enter "10" (the number from line 10 of the Deductions and Adjustments Worksheet) on line 1.
Next, they use Table 1 of the worksheet to find the number to enter on line 2. Because they will file a joint return and their expected wages from their lowest paying job are $13,300, they enter "2" on line 2. They subtract line 2 from line 1 and enter "8" on line 3 of the worksheet and on Form W-4, line 5.
John and Joyce Green can take a total of 8 withholding allowances between them. They decide that John will take all 8 allowances on his Form W-4. Joyce, therefore, cannot claim any allowances on hers. She will enter "0" on line 5 of the Form W-4 she gives to her employer.
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Getting the Right Amount
of Tax Withheld(p12)

rule
In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.
But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.
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Part-Year Method(p12)

rule
If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. To be eligible for the part-year method, you must meet both of the following requirements.
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How to apply for the part-year method.(p12)

rule
You must ask your employer in writing to use this method. The request must state all three of the following.
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Cumulative Wage Method(p12)

rule
If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. You must ask your employer in writing to use this method.
To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc.) since the beginning of the year.
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Aids for Figuring Your Withholding(p12)

rule
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IRS Withholding Calculator. (p12)

rule
If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. Go to IRS.gov and click on "Estimate Your Withholding" under "Online Services." It can help you determine the correct amount to be withheld any time during the year.
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Rules Your Employer
Must Follow(p12)

rule
It may be helpful for you to know some of the withholding rules your employer must follow. These rules can affect how to fill out your Form W-4 and how to handle problems that may arise.
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New Form W-4.(p12)

rule
When you start a new job, your employer should give you a Form W-4 to fill out. Beginning with your first payday, your employer will use the information you give on the form to figure your withholding.
If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in.
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No Form W-4.(p12)

rule
If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances.
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Repaying withheld tax.(p12)

rule
If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Your employer cannot repay any of the tax previously withheld. Instead, claim the full amount withheld when you file your tax return.
However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Your employer can repay the amount that was withheld incorrectly. If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return.
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IRS review of your withholding.(p12)

rule
Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of the Form W-4 to the IRS. There is a penalty for supplying false information on Form W-4. See Penalties, later.
If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a "lock-in letter") to both you and your employer.
The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter.
After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter.
If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise.
At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Your employer must then withhold tax based on this new Form W-4.
Additional information is available at IRS.gov. Enter "withholding compliance questions" in the search box.
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Exemption From Withholding(p12)

rule
If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. The exemption applies only to income tax, not to social security or Medicare tax.
You can claim exemption from withholding for 2012 only if both of the following situations apply.
Use Figure 1-B below to help you decide whether you can claim exemption from withholding. Do not use Figure 1-B if you: These situations are discussed later.
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Students.(p14)

rule
If you are a student, you are not automatically exempt. If you work only part time or during the summer, you may qualify for exemption from withholding.
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Example 1.(p14)

You are a high school student and expect to earn $2,500 from a summer job. You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. You worked last summer and had $375 federal income tax withheld from your pay. The entire $375 was refunded when you filed your 2011 return. Using Figure 1-B, you find that you can claim exemption from withholding.
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Example 2.(p14)

The facts are the same as in Example 1, except that you also have a savings account and expect to have $350 interest income during the year. Using Figure 1-B, you find that you cannot claim exemption from withholding because your unearned income will be more than $300 and your total income will be more than $950.
EIC
You may have to file a tax return, even if you are exempt from withholding. See Publication 501 to see whether you must file a return.
Pencil
Age 65 or older or blind. If you are 65 or older or blind, use Worksheet 1-1 or Worksheet 1-2, to help you decide whether you can claim exemption from withholding. Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2012 return. Instead, see Itemizing deductions or claiming exemptions or credits, next.
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Itemizing deductions or claiming exemptions or credits.(p14)

rule
If you had no tax liability for 2011, and you will:use the 2012 Estimated Tax Worksheet in Form 1040-ES (also see chapter 2), to figure your 2012 expected tax liability. You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero.
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Claiming exemption from withholding.(p14)

rule
To claim exemption, you must give your employer a Form W-4. Do not complete lines 5 and 6. Enter "Exempt" on line 7.
If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. If you claim exemption in 2012 but you expect to owe income tax for 2013, you must file a new Form W-4 by December 1, 2012.
Your claim of exempt status may be reviewed by the IRS. See IRS review of your withholding, earlier.
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An exemption is good for only 1 year.(p14)
You must give your employer a new Form W-4 by February 15 each year to continue your exemption.
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Supplemental Wages(p14)

rule
Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate.
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Expense allowances.(p14)

rule
Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses.
Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time.
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Accountable plan.(p14)

rule
To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules.
An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.
The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.
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Nonaccountable plan.(p14)

rule
Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan.
For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.
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Penalties(p14)

rule
You may have to pay a penalty of $500 if both of the following apply.
There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.
These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. However, see chapter 4 for information on the penalty for underpaying your tax.