Salary:
As of 1/09 32,000
As of 8/09 25,000

Fed withholding (biweekly)
Current 201.02
YTD 2,081.89

Retirement contributions
Current Me: 45 Employer: 90
YTD Me: 1211 Employer: 2081

I tried the IRS withholding calculator and it came back saying I should claim 15 allowances. Does this mean I have already withheld enough to cover 2009 taxes since my income dropped so much? Should I withhold nothing for the remainder of 2009? 15 seems... like a really high number.

Assuming you are single and will claim the standard deduction, your federal tax liability will be about $2,850, which means you need only withhold another $780 to cover it.

Since the $780 is UNDER the $1,000 threshold of the under-withholding penalty, you could STOP withholding and settle up with the IRS with a check when you file your 2009 tax return NLT 15 April 2010.

Whether you want to do that or not is up to you. Under your current withholding, you will cover your federal tax liability by mid-November and will get a refund in the $700 range when you file your 2009 return.

While I always encourage taxpayers to write a check when they file their return (because ANY refund is an interest-free loan to the government), a $700 refund is not too excessive and is probably psychologically preferable to writing a $780 check.

The choice is yours!

If you do go for the 15 allowances on your W4 now, in January you will have to submit a new W4 to your employer, to show the correct number of allowances for 2010 and beyond.