Help! It's the income tax time of the year...

[Birdie dog]

I should be embarrassed probably that I still don't understand income tax but I don't. So, hoping for some understanding here. I'm married and both myself and my husband work. Although we were filing married and zero we were still paying about $4000 a year in federal taxes- (on top of putting 17% of my earnings in a 402b retirement account). So, this year I filed single and zero. My checks definitely feel smaller and comparing W-2s I've paid more taxes, but I also made more money this year than last. (Ballpark $15000 more). Should I see a decent decrease in taxes owed?

 

[mommy2allyandaveri]

Don't feel bad. I feel the same. We both claim 0 AND give extra to federal and state every month and we still owe every year. So annoying. Tax time gives me anxiety.

 

[mrodgers]

You're right, you don't understand, LOL.

Not to worry, from talking with people at work, people who understand taxes are a small minority.

My question is, do you owe taxes by April 15 or do you get a refund check?

You aren't paying taxes in your paycheck. The employer is withholding money to send to the IRS for taxes. When you file your taxes by April, that is when you find out what your taxes are. If it is less than you withheld, you get a refund. If more, you owe the difference.

When you say "filing married and zero" and "this year I filed single and zero" with the result of "My checks definitely feel smaller and comparing W-2s I've paid more taxes", that means your withholding changes. Think of the withholding as putting money away to pay for your tax and when you file, that is when you find out what your tax bill is.

Married couples pay less taxes together than 2 single people do. Thus, when you change your withholding from married to single, they will take more out of your paycheck because it is expected that your tax as single would be higher. Then when you file your taxes (which changing it now as you've said affects next year's taxes) you file married with your husband and you would together owe less than if you each were single so you've paid in more and get a larger refund (or owe less if not enough was taken out.)

Lots of people set up their withholding filing as "married at the single rate" so more comes out of the paycheck to get a larger refund when they file. It's sort of like a forced savings as they get huge refund checks. Most I know get in the realm of $8000 refund checks. They all tell me I'm doing something wrong because my refund checks were usually about $1000. They don't understand that the $7000 difference is in my paychecks. My checks were about $270 more than theirs (based on we all made about the same income.) Essentially by withholding "married at the single rate" and getting a huge refund, you are giving the government a no interest loan, to the tune of $7000 using my example here.

If you and your husband filed your taxes (the various 1040 forms or what you do when you go to an accountant/company) and both file single, you would have paid a lot more in taxes. Sounds like you don't file your own and go to an accountant and if so, they would have sorted it out for you. If you file yourself, you definitely want to file married with 2 dependents as you are both dependent (more dependents if you have children.)

 

[amcnj]

I used to review the withholding annually after completing the tax forms for the year. If I owed a decent amount that year and expected the next year to be similar, I adjusted my withholding by having an extra amount (the total owed divided by the number of checks that year) withheld each check.

In general you can estimate your income for the coming year and determine the expected taxes due on that amount and adjust the withholding accordingly. Naturally there can be unexpected deviations, but hopefully you will be fairly close to reality each year.

 

[Andrea1975]

The iRS has a calculator on their website that you can use to look at your expected income and withholdings and it will estimate whether you will owe or get a refund. It will suggest how to adjust things so that you come out close to even.

https://www.irs.gov/individuals/tax-withholding-estimator

 

[tzolkin]

There's a Tax Withholding Estimator tool on the IRS website. You can put in info from your paystub (wages, taxes withheld, retirement deferrals, etc) and it will tell you how to adjust your withholding so you're not overpaying or underpaying. Ideally, you want the correct amount of taxes withheld each paycheck so you don't owe anything at the end of the year (and you also don't want to get a huge refund because that's money that could have been in your pocket each month instead of waiting until you file taxes to get it returned to you).

The issue with setting your withholding as "married, X dependents" is that doesn't take into account what your spouse makes or what tax bracket you are in. For example, maybe you make a small amount of money and the taxes being withheld in your paycheck are at the 10% rate. But in reality, when you combine your income with your spouse's (when you go to file taxes) you're really in the 32%.

You also mentioned putting 17% of your income into a retirement account. Is your account a Roth or Traditional? One is tax-deferred so you don't pay taxes on that 17%. But if you have a Roth, you do pay taxes on the money before it goes into the account.

 

[tvguy]

If you had $15,000 in additional income, I would think you will own more taxes.

 

[tzolkin]

If you had $15,000 in additional income, I would think you will own more taxes.

Not if they had way more withheld. Depending on the percentage withheld, they could be receiving a refund. There's really no way to tell based on the information in the first post.

 

[tvguy]

Not if they had way more withheld. Depending on the percentage withheld, they could be receiving a refund. There's really no way to tell based on the information in the first post.

Not sure switching from Married zero to Single zero would make much difference. When it was legal, we always claimed "exempt" and had a specific percentage withheld. But they don't allow that anymore. That was the only way we could come close.

 

[tzolkin]

Not sure switching from Married zero to Single zero would make much difference. When it was legal, we always claimed "exempt" and had a specific percentage withheld. But they don't allow that anymore. That was the only way we could come close.

I was thinking the same, but the post does say his/her paychecks are smaller but s/he made about $15k more this year. (That may not be what was really meant, but that is how the post reads.) If the net pay is actually smaller than their paychecks from the previous year that would mean that all the extra wages ant then some (so $15k+) is being withheld, right?

Regarding the second part of your post. I think you still have to select a category (married/single), but you can opt to have an additional percentage or an exact dollar amount to be withheld. So if you use the IRS calculator it will tell you what you need to do to owe $0. Ex. "based on what you're currently doing, have an extra $423 withheld each pay period"

 

[Birdie dog]

Ok, I checked today and pulled numbers from last year. I mis-typed. I made about $5000 more (not $15000) and paid an additional $5000 in income tax. (Last year I paid $4000) on the 15th of April on top of my withholdings.
I withhold at a single rate, I'll file married.
I currently put 15% in a 403b and an additional 2% in a Roth.

 

[tzolkin]

Ok, I checked today and pulled numbers from last year. I mis-typed. I made about $5000 more (not $15000) and paid an additional $5000 in income tax. (Last year I paid $4000) on the 15th of April on top of my withholdings.
I withhold at a single rate, I'll file married.
I currently put 15% in a 403b and an additional 2% in a Roth.

You should be about even (see my reasoning below). But I would still recommend trying out the calculator tool on the IRS website so both you and your spouse can adjust your withholdings correctly for this year.

If you made an extra $5000 and you're in the 22% tax bracket, that would be $1100 in additional taxes (assuming nothing else had changed). Since you stated that you have had an extra $5000 withheld and that last year you owed $4000, then you have already paid an extra $1000 in taxes so there should only be about a $100 difference. (That said, there are lots of other variables like deductions, credits, etc that could affect your total. Also, you don't mention if your spouse's withholdings were changed at all. If he had more or less withheld than the previous year, when you combine your information together to file jointly that will change all the totals.)

 

[tvguy]

You should be about even (see my reasoning below). But I would still recommend trying out the calculator tool on the IRS website so both you and your spouse can adjust your withholdings correctly for this year.

If you made an extra $5000 and you're in the 22% tax bracket, that would be $1100 in additional taxes (assuming nothing else had changed). Since you stated that you have had an extra $5000 withheld and that last year you owed $4000, then you have already paid an extra $1000 in taxes so there should only be about a $100 difference. (That said, there are lots of other variables like deductions, credits, etc that could affect your total. Also, you don't mention if your spouse's withholdings were changed at all. If he had more or less withheld than the previous year, when you combine your information together to file jointly that will change all the totals.)

Deductions? LOL. I haven't been able to itemize since 2000. And my daughter bought her first home in 2019, the interest rate on her mortgage is so low, she can't itemize either! Standard deduction is more

 

[_19disnA]

If you generate income from other then your jobs (investment income, for example), could be one reason you owe so much at tax time. Taxes deducted by your employer are only based on your income from those jobs. That is the purpose of the W4 form. You submit that to your employer and additional money will be deducted from your paychecks. This avoids owing large taxes at tax time or possibly paying a fee for underpaying of your taxes.

 

[supersnoop]

The basics of income tax are pretty easy:

• Take the amount of money you make, and subtract certain deductions, like your contributions to your 403b and the standard deduction. (Roth doesn't count) These are called "above the line deductions. This income is the basis for how much you owe.
• Our income tax system is a "marginal tax rate" system, so, for married filing jointly, you owe 10% on the first ~$20k, 12% on the next ~$60k, 22% on the following $90k, 24% on the next $155k. I'll stop there, but if you make more than $326k, they keep going up. That makes up how much you owe.
• Take an credits and your withholding. This is how much you've already paid
• Subtract how much you've already paid from how much you owe. Either you owe a little more or you'll get some back.

Here's what gets terribly complicated; the withholding system is based on the concept of a single-income household. When you have two incomes, those lower tax rates don't really apply to the second income, which means you might be withholding10%-22% too little from that second income. Selecting the single withholding rate will cut that in half, but you'll still owe money. You can fill out your W4 using the new calculator on the IRS site with an extra amount to withhold to get your closer to $0.

 

[Birdie dog]

And update... I did my taxes this AM. And OH HAPPY DAY, I owe zero. I'm getting zero back also but it sure beats the 4000+ I paid last year. Withholding single and zero worked for me.

 

[Yinn]

And update... I did my taxes this AM. And OH HAPPY DAY, I owe zero. I'm getting zero back also but it sure beats the 4000+ I paid last year. Withholding single and zero worked for me.

Congrats! If you're ever in doubt, use the withholding calculator from the IRS. That will take some of the year end stress off.
https://apps.irs.gov/app/tax-withholding-estimator

 

[candy0730]

My husband and I used to both claim married/zero but would owe about $1500 at tax time. I changed to married filing at a higher single rate and now we get a refund. We like to try to get as close to owing zero/no refund. I would like to get back to the sweet spot of exemptions but I have changed my 401k contributions to 401k IRA and also no more overtime pay so it is difficult to determine what exemption to take.

 

[Darcy03231]

I did mine today too and am getting back $32. We usually owe a couple of hundred so I was happy.