So I am married filling jointly and we are both doing 1 allowance on W4 so why do we end up owning so much money every year? I thought 1 was the correct amount of withholdings for a married couple.
Edit: More important question: I saw that if I file, I can wait to pay until July 15th. Is there a way to when I file get the IRS my direct deposit info?
When my wife and I made similar money one of us usually claimed zero, even with two kids. With both incomes you get bumped up a bracket or two.
One possibility, if both of you work, is that one of your AGI’s is quite a bit lower than the other. Withholdings from that check are therefore too low to make the combined income vs. withholding work. We have the same issue, since one of our AGI’s is about 50% of the other. The higher earner has to do additional federal and state withholdings to compensate (our chosen method) to come close to our desired zero refund each year.
I do a half year simulation each July to see if we are on track and adjust the additional withholding as necessary if needed.
einy (Forum Supporter) said:One possibility, if both of you work, is that one of your AGI’s is quite a bit lower than the other. Withholdings from that check are therefore too low to make the combined income vs. withholding work. We have the same issue, since one of our AGI’s is about 50% of the other. The higher earner has to do additional federal and state withholdings to compensate (our chosen method) to come close to our desired zero refund each year.
I do a half year simulation each July to see if we are on track and adjust the additional withholding as necessary if needed.
My wife makes a bit over half of what I make so that may be the case.
I'd bet it's because each of you checked married and both of your employers are withholding taxes at the rate that assumes each of your incomes is the only income for your family. If each of you choose single with one withholding you will be closer to the correct amount. My experience is that if there's a big discrepancy single with 2 for the main earner and single with zero for the smaller earner works out generally ok.
The first so many dollars you earn tax at a lower rate than the next so many dollars and so forth. Since no one wants to get big paychecks in January and tiny ones in December your payroll office does a quick guess at the beginning of the year for what the total is going to be for the year, figures the effective rate of that total, and uses it for all of your standard paychecks. (That's why bonus and overtime have such huge amounts taken out, they typically withhold at the highest tax bracket amount just in case since it wasn't in the calculation.) The tables for married are spaced further apart per steps, so if they withdraw at that rate then they are not taxing appropriately for the top end of your pay.
This was a huge problem for my wife and I when she was doing contract work because the service we were paying to withhold for us assumed that each new contract was all she was going to earn that year and they withheld at the lowest rate for everything.
93EXCivic said:einy (Forum Supporter) said:One possibility, if both of you work, is that one of your AGI’s is quite a bit lower than the other. Withholdings from that check are therefore too low to make the combined income vs. withholding work. We have the same issue, since one of our AGI’s is about 50% of the other. The higher earner has to do additional federal and state withholdings to compensate (our chosen method) to come close to our desired zero refund each year.
I do a half year simulation each July to see if we are on track and adjust the additional withholding as necessary if needed.
My wife makes a bit over half of what I make so that may be the case.
Happened to us as well for last year's taxes as my wife started working again last year. On top of that they changed the federal W4 for this year, but there is a handy table that comes with it that allows you to figure out roughly how much you should be withholding as the higher earner to get you in the ballpark.
OTOH if you owe, at least you don't need to worry about someone having "liberated" your tax refund.
In reply to einy (Forum Supporter) :
That was my thought. I had that problem when I was married. I earned 4X my ex and every time I filed I ended up paying out big dollars to the IRS.
I also just realized that since I have owed money to the IRS last year and this I am assuming they don't have my direct deposit info so it will probably take forever the get the stimulus check
I get 26 checks a year for my base pay. I get 12 commission checks a year. It's hard to balance my taxes and all my deductions and not take out too much or too little.
I have too much taken out but it's hard to balance a low month or a month 5x higher. I'm trying to not get a high refund but it's hard.
Do you know how an automatic transmission works?
No you don't.
No one really knows how taxes work. The few that do, are far, far above our pay grade.
I know that I owe a bunch this year. Just did my taxes yesterday. I need to increase my withholding some more. The changes they made a couple years back raising the standard deduction but taking away or limiting some of the deductions I can claim results in more taxes for me.
Have your status be “married but withhold at higher single rate” for both of you. Use as much tax deferred savings as you can. I even have more withheld from each paycheck, but that is to cover my 1099 income that I have nothing withheld from.
When you start to have rugrats around it will get a little better and stay better when paying tuition but once they go away or age out it all comes back and you'll start to owe again. Then when the house is paid off and you lose that deduction it will be a bit worse. For the past couple years I consider myself breaking even. Owed a couple hundred on federal and got back a few hundred from state.
There should be a place on the form that you can mark married but withdraw at higher single rate plus an additional amount that you set. That's what I'm doing. I know my issue is not enough taken out of my military retirement so have to compensate by having more pulled out of my paycheck. Benefit of this state is military retirement isn't taxable which is probably why I get a refund from state.
Also another helper is increase how much you're putting into retirement as it's pre-tax dollars and reduces taxable income. You may not see it now at your age but trust me, it will be a big benefit later. I increase my input with every raise I get. Still haven't built up what I should for my age though.
mtn said:Have your status be “married but withhold at higher single rate” for both of you. Use as much tax deferred savings as you can. I even have more withheld from each paycheck, but that is to cover my 1099 income that I have nothing withheld from.
I need to double check cause I could have sworn I was doing that. I am trying to decide whether I want to change anything. My wife withholdings were more messed up for 2018 and the first three months of 2019 so that would lower the amount I owe for 2020 a little more and then with a kid on the way in June I am not sure how much more that will knock the amount down.
You know, if you wind up owing a lot every year, you can ask payroll to withhold more? because I do casual "on call" work outside of my main workplace, I have all the places I work at hold an additional $25 a pay cheque. Learned that mistake the hardway.
A tax accountant friend of mine says similar to above re wage difference. She also says set it up so you owe a little at year end. (1) no reason to let the man hold your $ interest-free, and (2) people who owe every year are audited much less frequently than people who get refund every year. Apparently the man doesn't like writing those checks.
I started a similar thread a while back focussed on deductions. I owe $2500 this year.
What I learned is that my workplace wasn't using the withholding I requested. We are DINKS with no chance of real deductions, and I earn about 2X what the misses does. They had me set up as married/0. I switched it to single/0 on the last pay period and I suddenly lost an additional $200/check. I think that's a bit overkill considering I get 26 checks a year. I may try what OldOpelGuy suggested above. I do agree that I prefer to owe slightly. If I could keep it in the $200-$300 range every year I'd be happy.
Here's what I know. Everything in life that is supposed to save you money ("you're 25 now, your car insurance will drop! You own a house now, that's a big tax savings! You're married now, you can get money back! You have dependents now, that's gonna get you paid!") has never saved me a dime. The government has never sent anything my way in terms of assistance, refunds, aid, or stimulus. I always make too little or too much for everything, and usually by about a dollar so I just miss the cutoff. The trillion-dollar stimulus package? Not one red cent will make it my way, guaranteed. Every time we think we might get some money back from taxes, they change the rules and we have to pay.
At some point you put in zero and no dependents. At some point beyond that you also add an additional dollar amount to be deducted by your employer. There are some online calculators to help decide this.
My wife is a MD who works on contract so she gets a 1099. No withholding. She saves about a 1/3 of each paycheck so we have enough to pay our taxes at tax time.
On top of that I file zero dependents and single. We make about the same but I get benefits and she does not other than the benefit of living with me (insert sarcasm imogi here) .
Some people in our situation pay quarterly taxes to soften the blow of writing the big check every year.
A lot of this for 2019 is a result of the "middle class" tax changes.
Our AGI was almost identical between 2018 and 2019. We paid a little more in total taxes for 2019, but that is mostly because we lost DD#2 as a dependent in 2019. I suspect beyond that our taxes might even have gone down slightly.
But the withholding tables got notably shallower in order to maximize takehome pay. So I'm actually writing a check that is about 3x larger than I did for 2018, even though my actual taxes are not much different.
I'll try to keep this as apolitical as possible. To make the tax cuts look like they are working for the middle class the administration quietly changed how much withholding they took from everyone's paychecks.
https://www.cnbc.com/2018/01/11/what-the-new-tax-withholding-tables-mean-for-your-take-home-pay.html
https://www.cnbc.com/2019/12/05/one-step-you-can-take-in-2020-to-head-off-a-tax-surprise.html
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