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Income tax withholding - not enough
06-29-2005, 12:41 PM
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#1
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Recycles dryer sheets
Join Date: Apr 2005
Posts: 62
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Income tax withholding - not enough
I ran into a big problem with my 2004 income taxes. You see, when I was single I always got a nice refund check of around $600 from the Feds and $150 or so from the state. I always claimed 1 allowance on my W-4. No problems.
Well I got married in late 2003 and after our first full calendar year together (2004) we decided to file "married filing jointly". Wham! We had a tax bill of $2000 due. It would have been even more if I wasn't able to deduct some mortgage interest and school expenses.
What happened? My wife doesn't claim any allowances on her W-4 (zero) so I figured it was my fault and I switched my allowances to zero reducing my net pay. I even looked up the withholding table at the IRS website and the withholding amount is correct my income and filing status. Yet, Quicken tells me I may be under-withholding again this year. So I ran my numbers through the IRS estimator and sure enough I am projected to be short again next year. What the heck is going on? I make the same money as I did when I was single, have more withheld and still wind up owing taxes when I used to get a refund?? Is this the marriage penalty? I thought the did away with that. Any ideas?
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Re: Income tax withholding - not enough
06-29-2005, 12:46 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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Re: Income tax withholding - not enough
If you're both high wage earners, getting married can have some bad tax implications. If one of you is a low/no wage earner, it can be quite beneficial. I dragged down my wifes tax load when we got married.
Are they asking you to pay any penalties or estimated taxes? After all, paying the most possible without incurring the IRS's wrath is what you want, not a big check back. I'll take my free year long loan from the IRS rather than give them a yearlong one that pays no interest...
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Re: Income tax withholding - not enough
06-29-2005, 12:46 PM
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#3
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Recycles dryer sheets
Join Date: Nov 2004
Posts: 260
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Re: Income tax withholding - not enough
Welcome to the wonderful world of the marriage penalty! *
I was in the same situation when I married ten years ago (11 in December, but who's counting? * ), receiving refunds most years, but having to pay ever since I got married. *If you have children, I'm told, the child tax credit offsets a fair chunk of the marriage penalty. *DH and I, however, are not having children, so I can't speak from experience on that one.
As for withholding, both DH and I claim zero deductions and check the "Married but withhold at the higher single rate" box on the form. *We generally owe $400-$500 come April 15 (that's with a mortgage deduction, but few other deductions).
Check with a tax preparer regarding specifics of your situation.
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Re: Income tax withholding - not enough
06-29-2005, 01:01 PM
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#4
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Recycles dryer sheets
Join Date: Apr 2005
Posts: 62
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Re: Income tax withholding - not enough
My wife was pretty steamed at me too. She always got about $1000 back in refunds and was none too pleased to be faced with a bill. She's fairly convinced it's my fault because I didn't have my W-4 allowances set to zero.
Wait until I tell her it's "the marriage penalty"
Oh well, we'll still get some amount of a refund next year because the mortgage interest deduction will offset the money not withheld and then some. We only had two months of mortgage payments in 2004 so it only helped a little.
th: I didn't have to pay any penalty luckily. I came in just under the threshold. It came at a really bad time though.
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Re: Income tax withholding - not enough
06-29-2005, 01:21 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2004
Posts: 2,670
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Re: Income tax withholding - not enough
Quote:
Originally Posted by peggy
Welcome to the wonderful world of the marriage penalty! *
I was in the same situation when I married ten years ago (11 in December, but who's counting?
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The marriage penalty of today is unlike the marriage penalty of ten years ago. It is much more fair than it used to be. So that may not be the answer.
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No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
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Re: Income tax withholding - not enough
06-29-2005, 01:31 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2004
Posts: 2,670
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Re: Income tax withholding - not enough
Quote:
Originally Posted by BristolBane
What happened?
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If you used a CPA to prepare your tax returns, (s)he should be able to give you a good reason why.
If you prepared them yourself and you don't know why you owe so much, then you may not have a good enough understanding of the tax laws.* If that's the case, you may want to go to a CPA next year.
Tax software is generally OK with an easy tax return, but sometimes these tax software programs give people a false impression of being experts in taxation just because the form prints out with numbers on them.
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
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Re: Income tax withholding - not enough
06-29-2005, 01:38 PM
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#7
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Recycles dryer sheets
Join Date: Apr 2005
Posts: 62
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Re: Income tax withholding - not enough
I thought about going to a CPA but I was pretty sure the numbers were right and I was already in the hole. How much do they charge for tax prep?
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Re: Income tax withholding - not enough
06-29-2005, 02:14 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Feb 2004
Posts: 2,670
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Re: Income tax withholding - not enough
Quote:
Originally Posted by BristolBane
I thought about going to a CPA but I was pretty sure the numbers were right and I was already in the hole.* How much do they charge for tax prep?
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That's like asking, "How much does a car cost?"
It depends on how complex your tax situation is, but the fees probably range from $100 to $1000.* A good CPA will not only "prepare your tax returns," but also be available to answer tax, financial, and/or business-related questions that usually come up during your lifetime.* I've always said, it's a good idea for everyone to have a good lawyer and a good CPA at your side, especially if you are in business for yourself.
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
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Re: Income tax withholding - not enough
06-29-2005, 03:41 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Mar 2004
Posts: 2,341
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Re: Income tax withholding - not enough
Quote:
Originally Posted by Notth
I'll take my free year long loan from the IRS rather than give them a yearlong one that pays no interest...
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I'm with th on this one. Unless my income were to slide down (it will next year), I had the payroll clerk deduct enough to equal (plus a few extra $) the tax I paid the previous year.
If I was due a refund, I would apply it towards next year and either, reduced my payroll deduction (while employed) or now will reduce my estimated tax to get my money back sooner.
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I look to the present moment because that's where I live my life.
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Re: Income tax withholding - not enough
06-29-2005, 04:14 PM
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#10
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Recycles dryer sheets
Join Date: Nov 2004
Posts: 260
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Re: Income tax withholding - not enough
Quote:
Originally Posted by retire@40
The marriage penalty of today is unlike the marriage penalty of ten years ago.* It is much more fair than it used to be.* So that may not be the answer.
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Correct. But DINK couples still get socked with more taxes due than two single people. I keep saying that if I had known how much the marriage was going to cost me, we would've been living in sin all this time.
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Re: Income tax withholding - not enough
06-29-2005, 04:47 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
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Re: Income tax withholding - not enough
"Living in sin" sounds much better to me!! 8)
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Have Funds, Will Retire
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Re: Income tax withholding - not enough
06-29-2005, 05:32 PM
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#12
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Recycles dryer sheets
Join Date: Feb 2005
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Re: Income tax withholding - not enough
Quote:
Originally Posted by peggy
Correct.* But DINK couples still get socked with more taxes due than two single people.*
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No kidding ... (last year was the first that we got anything back.)
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"Coffee: the finest organic suspension ever devised." -- Kathryn Janeway
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Re: Income tax withholding - not enough
06-30-2005, 04:23 AM
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#13
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Confused about dryer sheets
Join Date: Mar 2005
Posts: 5
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Re: Income tax withholding - not enough
Are you deferring as much of your taxable income as you possibly can? Are both of you maxing out your 401K contributions, and setting up flexible spending accounts for your health care costs? If you have the option to do these things and are not currently doing them, try it. They should get you back into refund territory again.
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Re: Income tax withholding - not enough
06-30-2005, 06:17 AM
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#14
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Full time employment: Posting here.
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 828
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Re: Income tax withholding - not enough
I ended up sending in around $5000 last year. I had some capital gains and dividends that caused this. I had them just withold extra from my paycheck this year. For me it was easier than sending in extra quarterly. I ran the tax numbers without my salary and I would save around $5000 per year. It's an eye opener when you calculate how much you acctually make from working.
Im now clearing 44% after taxes, insurance and 401k contributions.
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Re: Income tax withholding - not enough
06-30-2005, 06:56 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Dec 2002
Posts: 3,875
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Re: Income tax withholding - not enough
I don't think I ever paid any est. fed, taxes in my life. Seems I always had a way to boost withholding to cover myself. Figured I might have to start this in ER but so far I have been able to hold my income
under the threshold for paying any fed. tax. Nice, and nice not to fuss
with quarterly estimates.
JG
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Re: Income tax withholding - not enough
06-30-2005, 07:28 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Feb 2004
Posts: 2,670
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Re: Income tax withholding - not enough
Quote:
Originally Posted by dm
Im now clearing 44% after taxes, insurance and 401k contributions.
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Funny how you think of 401(k) savings as an "expense" along with taxes and insurance.
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No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
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Re: Income tax withholding - not enough
06-30-2005, 10:49 AM
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#17
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Full time employment: Posting here.
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 828
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Re: Income tax withholding - not enough
I don't consider my 401K an expence at all. It just points out how much I really need and that Im still paying alot in taxes even though Im maxing out my 401K.
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