Dear Cheapskate: I’ve Got a Question on Withholding, People-Pleasers, Co-signing

Mary Hunt answers reader questions. Janna Golovacheva/Shutterstock

As faithful readers know, my inbox fills up quickly. While it’s impossible to respond personally to each of your letters and messages, I often choose questions to answer here, which I believe will be of interest to a large number of readers.

Dear Cheapskate: I just went back to work after being a stay-at-home mom for five years. And since my husband and I both earn about the same in salary, I’m unsure who should claim our son as an exemption on our W-4 forms. Should we both claim him or just one of us, and how will that affect our taxes next year? —Puzzled in Peoria

Dear Puzzled: Because I don’t have specific details on your situation, I suggest that you leave your husband’s W-4 as it is and you claim “0” exemptions on your W-4 just to be on the safe side. The fewer exemptions you claim, the more money is withheld from your paycheck.

That’s good because you want to make sure sufficient taxes are withheld so you don’t owe money. If it turns out you get a refund on your first tax return as a two-income family, you can increase your number of exemptions.

If you end up having to pay, you will want to decrease your husband’s exemptions so more money is withheld. The IRS website has a worksheet and withholding calculator (“Tax Withholding Estimator”) to determine how many exemptions you should claim between the two of you. You can change the number of exemptions on your W-4 at any time.

Dear Cheapskate: My mother is a widow living on a tight budget. The past few Christmases, she’s been blowing a lot of money on gifts for my husband, me, and the kids. Then by spring, she'll usually ask me for a little help to cover her bills. I know she feels Christmas is the one time she can really spoil us, but I’m worried she may be digging herself into a money pit. What can I do? —Concerned Daughter

Dear Concerned Daughter: I think your mom and I have something in common. We are people-pleasers. It’s easy for us to go overboard trying to get approval. Given that, here are a couple of ideas.

Take her out to lunch and tell her you understand that things are tight since your dad is gone and it makes you uncomfortable when she spends a lot on you. Gently turn the conversation to the coming holidays. Ask her to help you teach the kids that sometimes, the best gifts aren’t wrapped up in a box. Years from now, they won’t remember the gifts she gave as much as the time she spent with them. One idea might be for her to give them individual gift certificates for “My Special Day with Grandma,” a day doing just what they love to do.

As for you and your husband, if she has a possession that you love dearly, suggest she give that to you for Christmas. She'll have many years of watching you enjoy owning something that is also precious to her.

Dear Cheapskate: My husband has co-signed a couple of loans for family members, and his brother just asked him to co-sign for something else. I really love his generous nature, but I’m worried it might end up hurting us in the end, especially since we are looking to move soon and will need to take out a loan of our own. Could his helpful ways hold us back? —Worried Wendy

Dear Wendy: When he (you and he, really) co-sign a loan, you are representing to the lender that you will step up and make the payments if the borrower does not. The loan’s payment history becomes part of your credit history and shows up on your credit report as your debt.

There are two reasons a person needs a co-signer: That person 1) doesn’t have any credit history or 2) has bad credit history. You take a huge leap of faith when you co-sign a loan. You are taking a risk that the bank or finance company is unwilling to take.

Your husband does his family members no favors by enabling them to get over their heads in debt. Your fears are well founded because if you need to refinance or get a loan in the future, your husband’s credit report will show all of those co-signed loans as his own.

If there are any late payments or the outstanding balances make him appear to be overextended, that will reduce his credit score significantly to the point that you cannot get the best rates or even qualify for favorable insurance rates or auto financing.

That’s a long answer to your question. The short answer? Yes! Unfortunately, he can’t get his name off the loans. He’s on the hook until they are paid in full. But he can resolve to never co-sign in the future.