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INCOME TAXES?
I got out taxes done over the weekend. We got married in December 2009 so the marjority of the year in 09 we both had single & one exemption for payroll but then we filed married. We ended up getting a fair amount back for that year. But now for the year 2010 we both had married & one for payroll for the year and had we not had the energy tax credit for windows we bought we would have owed 2+K!?!?!?!
So, how, when we filled out the W4 form correctly claiming we were married and each had one exemption for ourselves, and taking the standard deduction, would we owe? Aren't the tax tables better than that?
And I know how to fix it by changing our withholdings, but I just don't get WHY if you follow that W4 table that the IRS provides does it not work out better????
Re: INCOME TAXES?
The tax tables work fine. The problem is that they don't account for dual-income households. Say you each make $50,000. If you withhold at the married/1, your job takes the proper amount out, but it only knows that YOU make $50,000. Essentially it is set to withhold for a household income of $50,000. But together you make $100,000, so you are in a higher bracket. There's simply no way to accommodate for this in the tax tables, so you have to change your withholding yourself. I find that withholding at the higher single rate, with no exemptions, works out well for us. (You can use the calculator at IRS.gov to figure it out.)
It worked out for you in 2009 because you were withholding at the higher single rate for almost the entire year.
And make sure you change your withholdings, because next year if you don't have the credit and owe $2,000, you might owe penalties as well.
Ok, I guess that helps a little, but I would still expect that that by checking "married" that they would mean to them two incomes and so I should be in a higher tax bracket because of the other spouses income and therefore they should withhold more. Because in the W4 table it says to claim another exemption if your spouse does not work or makes less than $1500. I just thought it should work out better. So a lot of people must claim single even if they are married? I just can't get over how silly that sounds!
And why would I have penalties if I don't change? Because I am just following exactly as suggested on the W4!! Its not my fault that the tables don't work out! Why kind of penalties are there? How much could those be?
There is no way tax tables can take into account every scenario - does your husband make $0 or $1,000,000? How does simply checking "married" answer that question?
The W4 is a generic form; it's not "one size fits all." The IRS has a withholding calculator that can help you figure out how to fill out the form in the way that will be best for your specific situation.
You would have penalties if you don't change because you are personally responsible for making sure that your withholdings are correct.
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No matter what he makes he is also paying based on his income as well and he checked married too so I just think the tables could be adjusted to withhold more. We both made the same in 2009 (single/1) as we did in 2010 (married/1) and our federal income tax withheld was HALF in 2010 as it was in 2009. So if single status they are taking more out and I would be in a lower income bracket, then why, being married and likely being in a higher income bracket because our incomes would add together are they taking HALF as much out??
My withholdings are correct, I filled out the form as they suggested by the questions in the table on the W4? So if I DON'T change to single and 0 - which is NOT correct- I could face penalties??
Just a word of caution. Our house didn't help us at all. We live in a LCOL area and have a very small loan on our house so we have very little mortgage interest. We end up taking the standard deduction because we do not have enough itemzied items to exceed the standard deduction. However, this would be different for you based on the purchase price of your house. The standard deduction for married filing jointly is $11,400 so you automatically get that off your income. In order for a house to make a difference your mortgage interest plus other itemized items needs to exceed that amount.
First, it does matter what he makes because it's where you fall on a combined basis that matters (if you're filing jointly). I don't know why your specific situation ended up the way that it did, but by choosing married, less was withheld from both of your checks.
By having your withholdings correct, I mean you are responsible for ensuring enough is being withheld from your check for taxes. Simply filling out "married 1" does not always accomplish that.
You won't face penalities for not changing your W4, specifcally. Your W4 can pretty much be filled out however you want it to be filled out. You will, however, face penalties if what is being withheld from your checks is not sufficient to meet your tax liability (there are all sorts of rules as to when penalities apply and I am no expert, so I'll let you do your own research on that part).
I get being frustrated. Our tax system is not all that straightforward, but if you're upset about it, then do some research and find out why you're having issues and what you can do to alleviate those issues in the future. IRS.gov has all the information you need.
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We've run into issues with this too.
We have "Single" and "O" for our withholdings on our W4 forms, and we still each have extra money taken from each paycheck towards federal and state taxes. We didn't even have enough taken out this year - we owe the federal government $156 (not bad!!! last year it was 3k) this year, but we are getting $243 back from the state, so basically a wash.
You are best to figure out your income estimates, figure out how much tax you need to pay based on that, or figure out if you can fit in additional charitable contributions to downstate your income and lower your tax obligation.
jack | born 9.13.12 at 40w4d | 9 lbs 12 oz | 23 in
my puppy loves - chloe & jenson
pregnancy blog | chart
You should be able to trust your tax person - but we had to keep ours at 0 because owning a home alone didn't make enough of a difference for us.
jack | born 9.13.12 at 40w4d | 9 lbs 12 oz | 23 in
my puppy loves - chloe & jenson
pregnancy blog | chart
Thank you all for your input. I did do a little searching and put in our numbers in an irs.gov calculator and they even suggested to claim zero and have additional amounts withheld. It also seems most of you that have posted do the same thing.
That just seems crazy to me, but I guess that is the way it works!
Thanks again! Have a great day!!
I hope we can trust him! He actually went through and changed all of our 2010 numbers as if we owned our house in 2010 and it worked out alright! If we still owe next year, he'll be fired
FWIW, this is the scenario in which I was talking about potentially owing penalties. If you owe a bunch (I forget the amount, but I think it is around $2,000) at tax time, then you either have to do estimated payments or change your withholdings because if you owe $2,000 again the next year, you'll be charged penalties. Basically, if you owe too much two years in a row, you are penalized.
And to echo someone else, owning a house isn't enough for us either.
Yep - our accountant gave us the info for estimated taxes but since we opted to change our witholdings back - we'd be getting a refund PLUS the overage from the estimated taxes which is just rediculous. We'd be getting a 6000 refund from the feds!
The problem we have is that last year we got a giant refund so we changed our witholdings to even it out - but the pendulum swung clear the other direction. For us, re-setting our witholding to a single status will swing it back to refund land but at least we won't be paying in. *shrug* I agree that I wish the tax tables were easier to figure out so you could have the correct ammount deducted but they just aren't set up that way. I'd love to either pay a little in or get a little back and have it set just right than worry about the huge payment or a huge refund!