Fun with Taxes

Stephanie2167

My husband and I have been married 10 years and we have three little ones (5/2/2). As we look at our paystubs we both claim differently. He still claims single for both federal and state and I claim married federal and single state and we both claim 0 allowances. I know it's frowned upon to let the government hold onto our money throughout the year but it's worked for us the past 10 years and we use our tax return as a bonus and throw it right into savings. I guess my question is, would there be any change if he changed his status to married? What if one of us decided to claim 5 since we're a family of 5. Our biggest concern is getting a measly extra $100 bucks a month that'll get spent on who knows what and then we get a significantly smaller return later. Does that make sense? We've been living the "If it ain't broke don't fix it" mentality.   

labro

https://www.irs.gov/Individuals/IRS-Withholding-Calculator This thing is my bible. You can play with it, change your filing status, your deductions, etc. and it's a pretty good estimator of if you'll owe/get money back/not owe or get a return.

cbee817

We have 2 kids and claim Married 1 on Feds, Married 0 for State. So far (still need to add in DH's union due expenses), we owe the Feds $100 or so and should get back almost $1,000 from the state. We usually owed the state, but that changed once we set up 529 plans for the girls in 2014. I don't think we're going to change anything- I tried the allowance worksheet once and it was so odd- had some number like 4 or 5 but then had us giving $250 or so a paycheck anyway.. seems much easier just to leave it at 1 and 0 especially since our raises occur in April (for me) and September (for DH). I like a return- we put it right into our vacation fund which I don't think we do throughout the year. So far, that account has been fully funded with "extra" money (like tax returns, small one time bonus, DH's health insurance waiver, etc). 

hoffse

Well I wouldn't claim 5 if both of you work.  That could give you so much back in your paycheck that you end up owing.

But if you are getting a big refund each year and it's not because of a one-off reason, then yes I would adjust withholdings so that you are getting more back in your paycheck.

I know some people use tax withholdings as forced savings, and if that's what you need to do to make things work, then maybe it's best for you.  Personally, I would like to get a $100 refund each year and call it done.  

You may not have heard about this, but the IRS has had huge issues in recent years with tax refunds getting stolen.  I read an article recently that said they estimate tax refund fraud to hit $21 billion by 2016.

Technically they are still supposed to give you your refund if somebody impersonates you and steals it, but the process of proving your identity was stolen is an enormous pain, and then it makes filing in subsequent years harder because you have to go through extra identity security measures.  To me, the once-a-year fun of the lump sum is not worth the risk, if you can reasonably plan around it.

Besides, it's your money that they are giving back to you.  It's not a bonus.  You earned it, and by overwithholding you are essentially giving them a 1-year interest-free loan on those funds.

If you need that money taken out of your paycheck automatically to help you save, then I would split direct deposits (I assume you have direct deposits?) among multiple accounts so that some of your money is sent to a savings account automatically.

als1982

I have no idea what H claims, but I do know I didn't bother to change mine after we got married. And frankly, I like getting a return. We use big chunks more wisely than we would use an extra $50 every paycheck.

Stephanie2167

als1982 said:

I have no idea what H claims, but I do know I didn't bother to change mine after we got married. And frankly, I like getting a return. We use big chunks more wisely than we would use an extra $50 every paycheck.

This is us exactly. But the identity fraud issue scares me since someone stole our debit card number just yesterday and went on a shopping spree at Walmart. Freakin thiefs.

vlagrl29

Its been a LONG time since I've worked corporate.  I do remember once I changed my filing status to married I got more money back in my paycheck - that's how I would prefer it.  Getting money in my hands instead of letting the govt. have it.  

kmurphy2131

My husband claimed the wrong thing, and we ended up owing $1300 to the federal taxes this year. It's not awesome to owe, but I would rather owe than get that much back, to me it means that we could have been living/savings differently all year.  I would rather have more like a $500 margin of return or owing, so I will have to play around with the withholdings to see how this year will shake out. 

When you get a return, it's not like you magically get the money, it was your money the whole time the government just was holding onto it.  If you owe, you owed it the whole time and would have just had less all year.

I agree with @Hoffse - I think that if you need it to be a big source of your savings, maybe you need to set up automatic savings from your paycheck.  It feels good to get a nice return, but it doesn't actually make financial sense.

LillibetteV

We both changed our withholding to married 1 last year and my quick math (I haven't done our return yet) has us owing about $2,400. Rawr. We're most likely going to shove money into my rollover IRA to get that bill down. I started a new job last July and you have to be here one year to qualify for the 401k - since I've always been a super saver and my retirement was solid we didn't worry about funding the IRA for 2015 and taking a short savings break until my 401k starts up so that we could do some repairs to the house.  

I despise getting a huge refund, I want to break even or get a small refund back. We have automatic savings set up so every time we find a way to cut a bill or get a raise we up the weekly transfer amount. I'm nuts about it though - I cut my cell phone bill $12/month once so I upped the amount $3 because every bit counts! In the past year alone I've double our savings rate with all those little tweaks.