Federal Tax question

[Nebraska_Disney]

I know the simple answer to my question, but thought I'd ask to see if anyone else has run into this. My wife and I both work full-time/salaried pay. I get paid monthly and she is bi-weekly (26 paychecks a year). We have 2 kids living at home, for a family of 4. On our W-4's, we both are listed as "Married" and claiming "zero". Prior to the tax changes, we would get a modest amount back each year of $2,000-3,000 from the Fed for overpaying. With the changes, we are getting more in our take home pay, but we have also had to pay in $600-700 in Federal taxes the last 2 years. It caught me the first time, but this last year I just budgeted $75 a month in preparation of paying. Outside of doing a new W-4, any ideas as to how/why we are still short at the end of the year claiming zero? I understand we are getting a larger take home check, but wondered how anyone else has addressed this on their end.

 

[tvguy]

When I could itemize, the only thing that ever used to work was claiming zero all year and having a specific percentage withheld. But they don't allow you to do that any more. The withholding tables don't seem to reflect what my actual tax will be.
But I haven't been able to itemize in 20 years, so I just say never mind and take the $3,700 refund.

 

[Nebraska_Disney]

Added to include, I now take the standard deduction as itemizing does not gain me anything

 

[DLgal]

Is your job income your ONLY income? Or do you have other income?

 

[afan]

Becauae claiming 0 isn't actually a thing now. I'm getting ready to compare my new paychecks (just started a new job) to my old one's to make sure enough ia being taken out due to a higher salary. I also use what they pull to cover what I make off my rental house so I don't have to pay later. I'd compare what was being taken out in 2018 vs now and up your % if you need to. There's a calculator or something on the irs websiteb haven't looked yet because I've been ×waiting for my hsa to start being pulled, our ins is fully paid by the employer.

 

[kymom99]

I was in the same boat. I was substitute teaching and on weeks where I only worked a day or two they sometimes took no federal taxes out. So now I have $100 a month Extra taken out of my pension. Things changed a little last year with my sons tuition so this year we got about $2500 back federal

 

[Nebraska_Disney]

Is your job income your ONLY income? Or do you have other income?

Some investment/dividend/interest income of approximately $2K a year

 

[cvjw]

Some investment/dividend/interest income of approximately $2K a year

We always end up owing extra taxes due to capital gains, interest and dividends. None of which has any taxes taken out

 

[ruadisneyfan2]

You can still request extra withholding. There's a spot for it on the W-4 just above the signature line.
Another option would be to keep saving like you're doing, and put it in a high interest savings account such as Ally.
Ours is still earning 1.50% It's not huge but it's better than nothing. I'd prefer that vs. letting the government keep it.

 

[MarcIsMe]

The old W4’s could not take into account a spouse’s pay which might push part of your total income into a higher tax bracket unless you did the math and requested additional withholding. The 2020 version of the W4 takes in account your spouses income, if you have dependents, and any additional income or multiple jobs. Keep in mind though the provided tables are designed to get you close to break even to have more take home income during the year.

 

[tvguy]

I've always advocated for a flat tax. 10% of whatever you make over $20,000. No deductions. Of course that would never work because taxes are an industry and millions would lose their jobs. But I bet the government would make more money, and taxes would be more fair.

 

[DLgal]

Some investment/dividend/interest income of approximately $2K a year

It's likely that pushing you to owe more than expected.

You can use the IRS withholding calculator and just inflate your expected income by $2000 and it will tell you how to fill out the W4 for each of your jobs.

 

[ruadisneyfan2]

I've always advocated for a flat tax. 10% of whatever you make over $20,000. No deductions. Of course that would never work because taxes are an industry and millions would lose their jobs. But I bet the government would make more money, and taxes would be more fair.

My dh has been saying this for years. Of course they can't keep it simple; it's the US government.

 

[dfchelbay]

I know the simple answer to my question, but thought I'd ask to see if anyone else has run into this. My wife and I both work full-time/salaried pay. I get paid monthly and she is bi-weekly (26 paychecks a year). We have 2 kids living at home, for a family of 4. On our W-4's, we both are listed as "Married" and claiming "zero". Prior to the tax changes, we would get a modest amount back each year of $2,000-3,000 from the Fed for overpaying. With the changes, we are getting more in our take home pay, but we have also had to pay in $600-700 in Federal taxes the last 2 years. It caught me the first time, but this last year I just budgeted $75 a month in preparation of paying. Outside of doing a new W-4, any ideas as to how/why we are still short at the end of the year claiming zero? I understand we are getting a larger take home check, but wondered how anyone else has addressed this on their end.

I know for me, I've had to pay more because I don't get the write offs I used to get. I used to have it all worked out to break even. Last year we had to pay. You or your spouse should start dumping money into a 401K pre-tax so you reduce your taxable income and don't have to pay that $600+ at tax time. Or, if your employers allow flex accounts for medical, you could put money in there pre-tax. You're short because less is being taken out of your check each pay period, but you still have to pay the feds a certain amount pursuant to your salary/wages...that never changed. You still owe about the same in federal withholding, but your employer is no longer taking out enough to cover that. You need to reduce your taxable income by 401k or medical/dental withholding pre-tax.

 

[wishuponastar1984]

The easiest thing to do is to adjust your W-4. I would also look at your Form 1040 from 2018 to 2019 and see if your total income and total tax have changed. Your refund/tax due is just the difference off what you over/underpaid. I never understand why so many people complain that they didn't get a refund. I would look at how your total tax as a ratio of your income has changed year over year. If you use Turbo Tax it prints this information on the first summary page. Look at how your "Effective Tax Rate" has changed year over year. That is what I would be focusing on. If you don't use turbo tax then look for the line titled "Total Tax" and divide it by "Adjusted Gross Income" to see what your ETR is. This is the only number that really matters.

 

[LAS2AMS]

CPA/MST here. Your federal tax liability isn’t calculated until you file, and as mentioned, it’s based on all taxable income. Your paycheck withholdings are merely deposits toward that liability.

Weekly withholdings are based on IRS tables, and apply to the current period income as if it were annualized. For example, if you were paid $1K per week, your withholdings would reflect that if somebody making $52K per year. But if you only worked one day that week, and grossed $200, your withholdings will reflect that of somebody making $10,400 per year. If that happens too many times, or you’re not on a fixed salary, it can be a major problem.

It can also be a large problem if there’s a large deviation in income between you and your spouse... but if you and your spouse are both claiming zero and you have two children, this can’t be it since you can’t claim negative deductions. Most likely, it has to do with income earns outside your place of employment (eg interest, rental, investment, etc.)

If you and your spouse are salaried, it should be fairly sikple to run a tax projection to see what you will owe or receive this year.

I've always advocated for a flat tax. 10% of whatever you make over $20,000. No deductions. Of course that would never work because taxes are an industry and millions would lose their jobs. But I bet the government would make more money, and taxes would be more fair.

It hasn’t that “tax is an industry” - it’s that it’d be a huge loss in tax revenue compared to the graduated system. And it wouldn’t be more fair, either. Most people with huge incomes don’t earn it from their job, but through investments. These people are already sneaking many of their household expenses as business deductions. Ultimately, their effective tax rate would be a lot less than that of a middle class person collecting just a W2.

 

[tvguy]

CPA/MST here. Your federal tax liability isn’t calculated until you file, and as mentioned, it’s based on all taxable income. Your paycheck withholdings are merely deposits toward that liability.

Weekly withholdings are based on IRS tables, and apply to the current period income as if it were annualized. For example, if you were paid $1K per week, your withholdings would reflect that if somebody making $52K per year. But if you only worked one day that week, and grossed $200, your withholdings will reflect that of somebody making $10,400 per year. If that happens too many times, or you’re not on a fixed salary, it can be a major problem.

It can also be a large problem if there’s a large deviation in income between you and your spouse... but if you and your spouse are both claiming zero and you have two children, this can’t be it since you can’t claim negative deductions. Most likely, it has to do with income earns outside your place of employment (eg interest, rental, investment, etc.)

If you and your spouse are salaried, it should be fairly sikple to run a tax projection to see what you will owe or receive this year.



It hasn’t that “tax is an industry” - it’s that it’d be a huge loss in tax revenue compared to the graduated system. And it wouldn’t be more fair, either. Most people with huge incomes don’t earn it from their job, but through investments. These people are already sneaking many of their household expenses as business deductions. Ultimately, their effective tax rate would be a lot less than that of a middle class person collecting just a W2.

Like I said....NO deductions. Everything over $20,000 is taxed at 10 percent.

 

[dclpluto]

Delete

 

[Mainsail Minnie]

I've always advocated for a flat tax. 10% of whatever you make over $20,000. No deductions. Of course that would never work because taxes are an industry and millions would lose their jobs. But I bet the government would make more money, and taxes would be more fair.

Um, no. There is nothing remotely more fair about someone who makes $25,000 per year and someone who makes $250,000,000 per year having to pay the same percentage of their income in taxes.

 

[tvguy]

Um, no. There is nothing remotely more fair about someone who makes $25,000 per year and someone who makes $250,000,000 per year having to pay the same percentage of their income in taxes.

Ain't happening so doesn't matter. People are making millions on our current tax system. But full discolosure, I haven't been able to deduct anything in 20 years.