The biggest catch with the withholding calculator is that it doesn’t tell you how to adjust for state and local taxes.
After crunching the numbers for a New Jersey-based married couple that files jointly and with one dependent, the IRS calculator suggested that the higher-earning spouse claim zero allowances and the lower-earning spouse claim six.
However, that result doesn’t consider the Garden State’s individual income tax rate, which is as high as 10.75%.
“The W-4 is supposed to change your federal withholding, but often employers give you the same allowances on the federal and state side,” Freeman said.
Taking six allowances for both federal and state likely would have resulted in the couple owing New Jersey the following April, she said.
Instead, the lower-earning spouse could take three allowances on the federal return and three on the state, Freeman said.
Contact your employer’s payroll department to let them know how you would like to deduct for state taxes.