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Old 03-23-2013, 07:06 PM   #26
scaryfastskier
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Post #8, foo
I'm using it. I just kind of thought there might be some helpful stories or tips to go along with it.

I've got enough on my plate for the next year as is. I'd like to avoid any nasty little surprises I can, especially ones that countless people here may have learned from.
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Old 03-23-2013, 07:14 PM   #27
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What I'm saying is, my paycheck seems to be taxed at a perfect amount for what I make. My wife's is taxed like she makes minimum wage. It doesn't make sense and shouldn't have anything to do with being married or having a certain income.
More than one income complicates things. I did taxes two years ago and this one girl worked four jobs, none of which paid very much so they all withheld at 10%. But that's not how tax brackets work. So when I added up all of her income, she had an effective tax rate of closer to 15% than 10% and ended up owing. She didn't understand how she could possibly owe since each job withheld at 10% but, again, that's not how tax brackets work.

Your income may very well be taxed at 30% and hers at 10%. But add the two of your incomes together and you could have a combined income that requires a higher effective tax rate. Either way, your wife is clearly not having enough money withheld and she claims 0 on her W-4. 0 means that the bare minimum is withheld. I'd start by using last year's tax bill to figure out what your tax liability is and divide it by 12 to come up with your monthly tax bill. Then play around with your wife's allowances (start with 1 or 2) each month until the correct amount of money is withheld.
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Old 03-23-2013, 07:32 PM   #28
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What's the point where you start incurring a penalty for not paying enough throughout the year?

Things that don't matter:
Personally, I'd just budget for the tax bill.
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Old 03-23-2013, 07:45 PM   #29
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More than one income complicates things. I did taxes two years ago and this one girl worked four jobs, none of which paid very much so they all withheld at 10%. But that's not how tax brackets work. So when I added up all of her income, she had an effective tax rate of closer to 15% than 10% and ended up owing. She didn't understand how she could possibly owe since each job withheld at 10% but, again, that's not how tax brackets work.

Your income may very well be taxed at 30% and hers at 10%. But add the two of your incomes together and you could have a combined income that requires a higher effective tax rate. Either way, your wife is clearly not having enough money withheld and she claims 0 on her W-4. 0 means that the bare minimum is withheld. I'd start by using last year's tax bill to figure out what your tax liability is and divide it by 12 to come up with your monthly tax bill. Then play around with your wife's allowances (start with 1 or 2) each month until the correct amount of money is withheld.
Thanks, that's very helpful. I don't quite understand what you meant in bold, though.
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Old 03-23-2013, 07:54 PM   #30
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She makes about 50% of what I do - I guess that could be it. The the only solution would be to withhold additional money on each paycheck on the W-4 to make up the difference, I assume.
There's your problem. I had the same situation. The government looks at it like this (I'm making up round numbers for purposes of getting my point across):

You list your W4 as Married with "0" dependents. You make $100k/year. The government withholds taxes as if, at the end of the year, you and your wife are going to file a return showing a grand total of $100k in income. Say that equates to an effective tax rate of 25%, so they withhold $25k throughout the year.

Your wife lists her W4 as Married with "0" dependents and she makes $50k/year. Same thing, government withholds as if the two of you are going to only report $50k in income (they don't take into consideration the other spouse's income in withholding). Subsequently, that may be an effective tax rate of 5%, so they withhold $5k throughout the year.

When you go to file your return, your joint income of $150k over the year nets you an effective tax rate of 23% (less than your withholding, but greater moreso than your wife's). So you've withheld $30k, but the total bill is $34k and you're in the hole. Make sense?

My first year married, I withheld at married with "0", my wife withheld at married with "2" (she has a daughter, and that's how she'd always done it). I made ~3x what she did, so at the end of the year she had had virtually nothing withheld from her check, so we owed big time.

I've since adjust my W4 to add an additional $ withholding from each check in addition to listing married and "0".
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Old 03-23-2013, 08:09 PM   #31
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Thanks, that's very helpful. I don't quite understand what you meant in bold, though.
Sorry. Your wife currently takes 0 allowances, correct? So, I'd start playing around with the allowances a bit until they withhold the proper amount of money to ensure that both of you combined are meeting your monthly tax bill. Remember what I said before, take your yearly tax bill and divide it by 12. Between you and your wife, that's what you need withheld every month.

When I went from standard to itemized deductions, I played around with my allowances until I got the proper amount withheld. For me, that turned out to be 3 (mortgage interest deduction and property tax deduction).
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Old 03-23-2013, 08:24 PM   #32
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Sorry. Your wife currently takes 0 allowances, correct? So, I'd start playing around with the allowances a bit until they withhold the proper amount of money to ensure that both of you combined are meeting your monthly tax bill. Remember what I said before, take your yearly tax bill and divide it by 12. Between you and your wife, that's what you need withheld every month.

When I went from standard to itemized deductions, I played around with my allowances until I got the proper amount withheld. For me, that turned out to be 3 (mortgage interest deduction and property tax deduction).
I'm pretty sure that playing around with allowances won't help them, they need to try and figure out how much extra to withhold/save.

I'd probably take the total amount I owed this year (not my total tax liability) and divide by the number of pay periods. Then have that amount withheld on top of the current married 0.
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Old 03-23-2013, 08:24 PM   #33
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It's been a few years since my wife and I both worked but when I filled out my W4 there was a 2 earners worksheet that you filled out the yearly income of each to figure out your withholding amount.
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Old 03-23-2013, 09:02 PM   #34
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Another option, if you're raking in $170k a year is to withhold nothing and setup an automatic transfer to an interest bearing account equal to what you would normally have withheld. Then come tax time, use that money to pay your taxes.

You keep the interest earned. At 15%, a 10 second (wrong) calculation could be $25k a year tax liability.
I don't think you can do that legally.
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Old 03-23-2013, 09:08 PM   #35
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What's the point where you start incurring a penalty for not paying enough throughout the year?

Things that don't matter:
Personally, I'd just budget for the tax bill.
I think it's owing $1000 or more.
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Old 03-23-2013, 09:11 PM   #36
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I don't think you can do that legally.
You canů but there'll be a hefty penalty at the end of the year in addition to the regular tax burden.
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Old 03-23-2013, 09:11 PM   #37
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I'm pretty sure that playing around with allowances won't help them, they need to try and figure out how much extra to withhold/save.

I'd probably take the total amount I owed this year (not my total tax liability) and divide by the number of pay periods. Then have that amount withheld on top of the current married 0.
I thought claiming S0 withheld more than M0, because the income thresholds are lower?
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Old 03-23-2013, 09:17 PM   #38
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I thought claiming S0 withheld more than M0, because the income thresholds are lower?
That is correct, but his problem is not withholding enough money. Adding allowances will withhold less, making the problem worse.
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Old 03-23-2013, 09:21 PM   #39
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That is correct, but his problem is not withholding enough money. Adding allowances will withhold less, making the problem worse.
If we both claim S0, I think our withholding would increase from M0, yes?
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Old 03-23-2013, 09:40 PM   #40
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Originally Posted by silver arrow View Post
I think it's owing $1000 or more.
Well, that makes life difficult.

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If we both claim S0, I think our withholding would increase from M0, yes?
According to the tax tables, yes.
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Old 03-23-2013, 10:08 PM   #41
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SA, should have named thread wealthy people problems...
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Old 03-23-2013, 10:18 PM   #42
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SA, should have named thread wealthy people problems...
They are...


annoying problems. Gonna have to postpone that tropical vacation cause of my poor tax planning this year.
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Old 03-23-2013, 10:48 PM   #43
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If we both claim S0, I think our withholding would increase from M0, yes?
Yes, but it might not be enough to cover the difference.

That's why Integra96 should check. I'd guess (stress on guess) that it would mean hundreds more withheld not thousands over a year. He will probably need to have extra withheld.

edited for clarity on who I was talking to/about

Last edited by scaryfastskier; 03-23-2013 at 11:15 PM.
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Old 03-23-2013, 11:05 PM   #44
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I'm pretty sure that playing around with allowances won't help them, they need to try and figure out how much extra to withhold/save.

I'd probably take the total amount I owed this year (not my total tax liability) and divide by the number of pay periods. Then have that amount withheld on top of the current married 0.
I need to stop drunk posting. Sorry, completely disregard what I said about increasing your allowances. That would actually decrease the amount that is withheld from your paycheck.

If both of you claim 0, unfortunately I can't think of anything else to do other than have your payroll departments voluntarily withhold more income for taxation.
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Old 03-23-2013, 11:23 PM   #45
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Yes, but it might not be enough to cover the difference. That's why you should check. I'd guess (stress on guess) that it would mean hundreds more withheld not thousands over a year. You will probably need to have extra withheld.
It would easily add up to thousands, look at the tax tables I posted earlier.

A single person making $2K/bi-weekly would have $345 withheld while a married one would have $219 withheld.

Like someone already pointed out, the tax withholding seem to be designed for a married person to be the only earner in the household. If they both used the single withholding, the problem would probably go away.

So if you have a dual income household, make sure your taxes are withheld as if you were both single. themoreyouknow.jpg
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Old 03-24-2013, 12:00 AM   #46
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SA, should have named thread wealthy people problems...
Quote:
Originally Posted by pityr View Post

They are...

annoying problems. Gonna have to postpone that tropical vacation cause of my poor tax planning this year.
Yep, throws a kink in things.

On top of this, my wife is being furloughed. Double whammy. I'm trying to get her a job in the hospital system I work at. No furloughs and they pay better, but it'll be later in the year.

We have to get our house ready to rent (about 4k) and move closer to work, it's costing $1100/month in driving expenses.

How hard would I be hit with penalties for taking money from my 401k?

I think it's time to get an accountant to help figure this stuff out.
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Old 03-24-2013, 12:13 AM   #47
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Yep, throws a kink in things.

On top of this, my wife is being furloughed. Double whammy. I'm trying to get her a job in the hospital system I work at. No furloughs and they pay better, but it'll be later in the year.

We have to get our house ready to rent (about 4k) and move closer to work, it's costing $1100/month in driving expenses.

How hard would I be hit with penalties for taking money from my 401k?

I think it's time to get an accountant to help figure this stuff out.
You generally are prevented from withdrawing from your 401(k) unless you quit. If that's the case and you withdraw, it's a 10% penalty on top of your standard tax rate.

Most plans do allow you to borrow from your 401(k) though, which may be a better bet for you. Check with your plan administrator, but key elements usually include:
* Limited on how much you can borrow as a % of your total contributions to your plan (market gains and un-vested employer contributions may not be accessible)
* Limited repayment period (could still be a few years or more)
* You pay a fixed, low interest rate, that goes back to your account.
* If you leave the job before repaying the loan, the outstanding amount may be subject to the previously mentioned tax penalties
* There's usually a small processing fee from the plan administrator
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Old 03-24-2013, 01:56 AM   #48
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You generally are prevented from withdrawing from your 401(k) unless you quit. If that's the case and you withdraw, it's a 10% penalty on top of your standard tax rate.

Most plans do allow you to borrow from your 401(k) though, which may be a better bet for you. Check with your plan administrator, but key elements usually include:
* Limited on how much you can borrow as a % of your total contributions to your plan (market gains and un-vested employer contributions may not be accessible)
* Limited repayment period (could still be a few years or more)
* You pay a fixed, low interest rate, that goes back to your account.
* If you leave the job before repaying the loan, the outstanding amount may be subject to the previously mentioned tax penalties
* There's usually a small processing fee from the plan administrator
I retired from the military and could take it from my TSP and transfer the rest to an IRA I'm pretty sure. I'll end up paying 35% on anything I take out with a 10% penalty.
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Old 03-24-2013, 02:39 AM   #49
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Would it help OP at all if they filed as married filing separately? Is that completely dependent on whether or not they have any dependents?
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Old 03-24-2013, 07:31 AM   #50
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It would easily add up to thousands, look at the tax tables I posted earlier.

A single person making $2K/bi-weekly would have $345 withheld while a married one would have $219 withheld.

Like someone already pointed out, the tax withholding seem to be designed for a married person to be the only earner in the household. If they both used the single withholding, the problem would probably go away.

So if you have a dual income household, make sure your taxes are withheld as if you were both single. themoreyouknow.jpg
Correct. Thanks, this helped me too.

Given that he is a quarter behind on the changes for this year, I still think extra until Jan 1 (or just save knowing he'll owe ~1/4 what he did this year) is in order. Agreed on that?
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