Couples with disparate incomes

[athena53]

The most important thing for finances to me is the same financial priorities.

Yep. I did contribute to the tangent but in a way it was relevant to the OT. The first year we were married, we were ambushed by the NJ tax code- our incomes were roughly equal but when stacked together, one got hit with the highest marginal rate. Doesn't matter whose- we were under-withheld and on April 14, with no earlier warning, the accountant asked for two large checks, one for the shortfall and one for the quarterly estimate for the current year.

It came out of my funds, of course. He didn't have any.

 

[pb4uski]

I apologize if this method has already been proposed, but Treas. Reg. § 20.2053-6(f) provides a formula for determining a spouse's individual share of income tax, used in at least one situation where such determination is needed for federal tax purpose.

You calculate what each spouse's tax would have been if they filed a separate return and accordingly prorate each spouse's tax against total tax liability. ....

I suggested that many posts ago. Third paragraph of post#9.

Is OP gone silent?

 

[CardsFan]

Even though DW often w*rked as many hours as I did, I always brought home (by far) the largest share of the income. She has no pension and her SS is much smaller than mine - she elected to start at 62 and I at 70. It never occurred to us to have separate financial lives. Having said that, I would never be critical of those who choose to do it like OP. I have a saying: I can barely run my own life. I'll not presume to run someone else's. YMMV

But he can't even run his own life
I'll be damned if he'll run mine

Thank you Jonathan Edwards

 

[Amethyst]

I've been running my own life for quite some time, thank you very much...and the thought of running anyone else's gives me the fan-tods.

But that won't stop me from posting anecdata, which others may interpret as they wish.

But he can't even run his own life
I'll be damned if he'll run mine

Thank you Jonathan Edwards

 

[MarieIG]

I've been running my own life for quite some time, thank you very much...and the thought of running anyone else's gives me the fan-tods.

But that won't stop me from posting anecdata, which others may interpret as they wish.

Good! It would be a boring forum if no one did so.

 

[Aerides]

Is OP gone silent?

Far more members visit and post with low frequencies, than those who spend all day here.

 

[pb4uski]

Far more members visit and post with low frequencies, than those who spend all day here.

I can see that generally, but less so for OPs who initiate a thread on a specific issue/question.

 

[ncbill]

Generally not true. For example, a married couple with $250k of wages pays the same federal income tax as two singles with $125k of wages each.

https://www.irscalculators.com/tax-calculator

It has changed over the decades depending on changes to tax code.

In the past a married couple has sometimes paid fewer taxes than two singles earning roughly the same each, sometime a married couple has paid more.

 

[pb4uski]

There's usually been no marriage penalty with such disparate incomes.

That normally comes into play when both earn roughly equal amounts.

I'd just combine incomes in one account and pay all taxes off that, even if they choose to hold just that one account jointly.

Generally not true. For example, a married couple with $250k of wages pays the same federal income tax as two singles with $125k of wages each.

https://www.irscalculators.com/tax-calculator

It has changed over the decades depending on changes to tax code.

In the past a married couple has sometimes paid fewer taxes than two singles earning roughly the same each, sometime a married couple has paid more.

Agreed, there have been times in the past where there is a marriage penalty but that isn't generally true today.

 

[Koolau]

But he can't even run his own life
I'll be damned if he'll run mine

Thank you Jonathan Edwards

I understand JE has had a successful c@reer, but no more hits. Kinda reminds me of seeing Oliver at a small pizza place that had entertainment. He did several numbers and then said "I'll now do a medley of my greatest hit."

Returning you now...

 

[Koolau]

I've been running my own life for quite some time, thank you very much...and the thought of running anyone else's gives me the fan-tods.

But that won't stop me from posting anecdata, which others may interpret as they wish.

Yes! We accept anecdata in the spirit it is offered. Use it. Don't use it. Top it if you can. Enjoy.

 

[statsman]

It has changed over the decades depending on changes to tax code.

In the past a married couple has sometimes paid fewer taxes than two singles earning roughly the same each, sometime a married couple has paid more.

For us, with relatively similar salaries over the years, filing joint resulted in less taxes. The issue we had was with the tax withholding on our separate incomes. For whatever reason, there seemed to be a disconnect there.

 

[athena53]

For us, with relatively similar salaries over the years, filing joint resulted in less taxes. The issue we had was with the tax withholding on our separate incomes. For whatever reason, there seemed to be a disconnect there.

I always backed into the number of exemptions to declare based on my anticipated income and deductions. When I was married to the Ex I had extra withheld for state taxes because of the issue I mentioned before. After the divorce I declared 10 withholding exemptions- not because I had 10 kids (I had only DS) but because I had a massive mortgage and property taxes. I always got a small refund anyway.

 

[samcat]

Pay your taxes pro-rata depending on who makes how much.

 

[G8tr]

Thank you all for your thoughtful responses. Some really great perspectives that run the full spectrum.

After getting over the initial shock of a large tax bill, I'm going to do the following based in part on the suggestions of several posters:

1. True up our respective withholding percentages for 2022 and fix this for 2023. Part of the large tax bill is my fault for not withholding sufficiently.

2. Pay my part of investment income taxes (did this in years past - wasn't fair to my wife because my jobs have all paid part in RSUs). When we retire, I'll pay any taxes on realized gains resulting from rebalancing. Not selling right now because we live in a high tax state.

3. Divide up the tax balance based on percentage of HHi income earned. This seemed the most fair to both of us. If the roles were reversed, I'd pay the larger percentage without question because my income would be the cause of the large balance.

While I hate paying taxes (I don't agree with wasteful government spending), I'm grateful for having this problem since it's a sign that we are doing very well.

 

[pb4uski]

^^^ What is HHi income earned?

 

[Surewhitey]

We have a different situation as of a few years ago. I started a small business while DW kept her insurance gig. Every other year, she ups her taxes withdrawal in October through March to "pay my taxes". She hates it, but understands it on a technical basis. It's a simple keystroke for her vs my paying quarterly.

I do all the tax planning for us and it's a small thing she helps with...besides working

We've ebbed & flowed on which one makes more, but overall, she has been the "breadwinner" to a 60/40 split. Insurance just pays too well...

You should see if she qualifies for the highly compensated employee program. DW did & tax deferred an extra 50% of her income... Big help if used correctly.

 

[MarieIG]

Thank you all for your thoughtful responses. Some really great perspectives that run the full spectrum.

After getting over the initial shock of a large tax bill, I'm going to do the following based in part on the suggestions of several posters:

1. True up our respective withholding percentages for 2022 and fix this for 2023. Part of the large tax bill is my fault for not withholding sufficiently.

2. Pay my part of investment income taxes (did this in years past - wasn't fair to my wife because my jobs have all paid part in RSUs). When we retire, I'll pay any taxes on realized gains resulting from rebalancing. Not selling right now because we live in a high tax state.

3. Divide up the tax balance based on percentage of HHi income earned. This seemed the most fair to both of us. If the roles were reversed, I'd pay the larger percentage without question because my income would be the cause of the large balance.

While I hate paying taxes (I don't agree with wasteful government spending), I'm grateful for having this problem since it's a sign that we are doing very well.

These are the key words. Great job working this out! I'm very glad to hear that you were able to come to a solution which seemed fair to you both. You also have a template to use going forward is it seems likely your HHi will seesaw in the future.

 

[G8tr]

We have a different situation as of a few years ago. I started a small business while DW kept her insurance gig. Every other year, she ups her taxes withdrawal in October through March to "pay my taxes". She hates it, but understands it on a technical basis. It's a simple keystroke for her vs my paying quarterly.

I do all the tax planning for us and it's a small thing she helps with...besides working

We've ebbed & flowed on which one makes more, but overall, she has been the "breadwinner" to a 60/40 split. Insurance just pays too well...

You should see if she qualifies for the highly compensated employee program. DW did & tax deferred an extra 50% of her income... Big help if used correctly.

My company offers a highly compensated employee program, but hers doesn't. I qualify, but haven't participated for various reasons. At this point, it might make sense to revisit participating, but I'd like to sit down with a tax adviser/accountant beforehand. Interestingly, many of my peers at work who qualify but also don't participate (many are the breadwinner and have young kids). Definitely something to consider to defer taxes.

 

[bingybear]

I find much of this to be forigin. We treat our money as our OUR mony.

 

[G8tr]

I find much of this to be forigin. We treat our money as our OUR mony.

Perhaps so. To each their own.

 

[Surewhitey]

My company offers a highly compensated employee program, but hers doesn't. I qualify, but haven't participated for various reasons. At this point, it might make sense to revisit participating, but I'd like to sit down with a tax adviser/accountant beforehand. Interestingly, many of my peers at work who qualify but also don't participate (many are the breadwinner and have young kids). Definitely something to consider to defer taxes.

She did in preparation for moving back to TX from California. Then we took a few years off In Mexico. Planned a 5 yr payout and got the 10% back from California for the 5 years and didn't pay much for federal for the 5 years. It's definitely a planning thing and we would have, in hindsight, done more years of deferment and the 10 years payout. Definitely worked the way we planned.

Otherwise we would have paid out around 40% state & fed...

 

[mickeyd]

50+ years of marriage and all of it using joint accounts and filing jointly.

Keeping it simple for decades.

 

[Koolau]

I find much of this to be forigin. We treat our money as our OUR mony.

Perhaps so. To each their own.

Whatever w*rks is good. I know folks who shared everything and got divorced over that issue. Love (and couple-hood) is way more important than how folks handle their money IF their method w*rks for them.

BFF and his wife share everything - including their $500K debt in their late 70s. They are a deeply committed couple (though I couldn't live like that!)

 

[Music Lover]

I find much of this to be forigin. We treat our money as our OUR mony.

People who have been together since they were young tend to do that. People in a 2nd or 3rd relationship in their 50's and 60's might have disparate net worths, one of them may have kids and the other no kids. So it's not unusual for those people to have different goals.

We have my money, her money, and our money. That's what we both want and it works well. If some people don't like that, we don't care. We're happy.