Changing exemptions on paystub

[Sham11801]

I anticipated filing sometime this year so i went ahead and changed the exemptions on my paycheck so it would minimize my refund next year. Does this any way affect income calculated for the means test? Would i fail it just based on having less taxes taken out? Im wondering if this was a mistake in trying to qualify for a 7 vs a 13

[laurannm]

No, it has no impact on your means test. The means tests uses your gross income and then subtracts allowed expenses, including your ACTUAL tax owed (and not necessarily your tax withheld from your paycheck, particularly if you receive a refund)

[willbfree]

Excellent question. May I add to your question? Our Ch7 was filed yesterday but it will be an assets case that the trustee will have business liquidation to perform. So I expect it to be months before we officially close. Changing DH's deductions to eliminate next year's tax refund would be a good move correct? Can someone confirm that if we are not closed thru 2009 or not until late 2009 the trustee can be expected to want next year's tax return which we will have just eliminated by changing the withholding.

[chad9162]

I thought the means test does take into account taxes deducted from your paycheck. So if you change withholdings your expenses in the means test would drop a bit, correct?

[kenshirley]

Means looks at gross income.

[chad9162]

Means looks at gross income.

Yes, but it deducts expenses such as taxes.....i.e. withholdings...

[OhioFiler]

Excellent question. May I add to your question? Our Ch7 was filed yesterday but it will be an assets case that the trustee will have business liquidation to perform. So I expect it to be months before we officially close. Changing DH's deductions to eliminate next year's tax refund would be a good move correct? Can someone confirm that if we are not closed thru 2009 or not until late 2009 the trustee can be expected to want next year's tax return which we will have just eliminated by changing the withholding.

The only portion of your 2009 tax refund that could be seized as an asset is the January and February portions (i.e. 1/6th of the refund).

You should eliminate the overpayment of taxes anyway. Why give the Treasury your hard earned money then ask for it back next April with no interest earned?

[laurannm]

Yes, but it deducts expenses such as taxes.....i.e. withholdings...

Not necessarily. You can deduct your actual liability, meaning if you typically receive a refund, your withholding is more than your liability and thus not a true picture. Most USTs will pick up on this and correct your means test

[chad9162]

Okay, so you're saying I can still deduct "actual liability" that's not the same as saying "no impact." Also "actual liability" would be based on deductions...some allowed and not allowed.

[laurannm]

I think you are missing what I am trying to say. Basically your actual tax liability is the number that appears on line 61 on your 1040. So for the means test you take that # and divide by 12 to get the monthly amount.

Changing your withholdings has no impact on the number that appears on line 61 on your 1040, and thus does not impact your means test...it only impacts whether or not you receive a refund.

[chad9162]

I'm not missing the point at all and when I read your second post is made more sense. My original comment was directed at kenshirley who said the means test only looked at gross income. You responded by saying "not necessarily" but I was partially correct that certain portion of withholdings can be included as an expenses.

Your point that your total tax liability can be deducted clarified things further.

Question: Since total liability is based on deductions that can change year to year then which do I use....last years deductions are no longer applicable? Can I use this years estimated deductions?

[laurannm]

Good question...our lawyer had told us we should just use the liability from our most recent tax return, but ours also doesn't change a whole lot from year to year.

[OhioFiler]

I'm not missing the point at all and when I read your second post is made more sense. My original comment was directed at kenshirley who said the means test only looked at gross income. You responded by saying "not necessarily" but I was partially correct that certain portion of withholdings can be included as an expenses.

Your point that your total tax liability can be deducted clarified things further.

Question: Since total liability is based on deductions that can change year to year then which do I use....last years deductions are no longer applicable? Can I use this years estimated deductions?

Technically, you would use about $400 less per taxpayer this year than last year as The Messiah has reduced your tax liability by about $8 per week as part of his stimulus plan. I would still base the deduction on your 2008 tax return as laurannm advised.