Is the IRS intentionally this obtuse???

[ArmchairMillionaire23]

First off, I know the tax withholding schedule changed back in 2020 but this is the first year it has affected me this negatively.

For the past 10+ years, I've contributed the federal maximum amount into my traditional 401(k) at my j*b. When I filled out my W4 after switching j*bs back in 2011, I claimed zero as I always have and I have always had enough taxes withheld to cover my tax bill. Plus, with the saver's credit, I usually got a small federal tax refund so I thought I was covered.

Then I changed employers in 2022. Filled out a W4 and claimed zero as before, and even managed to get a small refund in 2023 for the 2022 tax year.

Back in June, my current employer switched from doing the company payroll and had an outside accounting firm take over the duties. Not much changed, except my payroll switched to direct deposit, which was nicer than having to cash a paper check every week. Did my taxes this year. Turned out, when the company switched the payroll to the accounting firm, they followed the IRS W4 instructions and marked everybody as claiming one, and if a person was married and filing jointly, they got marked as claiming two.

Unfortunately for me, this was also the time I got some additional help in my position and switched from working 50-55 hours a week down to pretty much 40 hours a week. I noticed that if I didn't have any OT on my check, my federal taxes withheld was zero, but I chalked it up to putting $587 every week into my 401(k).

Well, after doing my taxes, not only do we have to pay in $1400+, my tax software claims I will be hit with an IRS penalty for not having enough taxes withheld. I since re-did my W4 and claimed zero, but on my next paycheck, the federal withholding was still zero. They took out 79¢ more in state taxes, though.

So I (foolishly) went to the IRS website and completed their "Tax Withholding Estimator". After entering our income, retirement contributions, taxes withheld, and everything else they asked for, here's what they suggest I do:

(try not to laugh)

Personal information and filing/marital status
Enter your personal information (Step 1(a) and (b).

Select Married filing jointly or Qualifying surviving spouse filing status (Step 1(c)).


Multiple jobs or spouse works
Please leave all fields on this step blank.

Claim dependents
Enter $6 on Step 3 for Claim dependents.

Other adjustments
Enter an amount of $33,437 on Step 4(a) Other Income (not from jobs). If you downloaded the pre-filled form, this amount has been entered for you.

Sign and date

So even if we both claim zero, not enough is being withheld from our paychecks. So the IRS is instructing me to lie and claim I am somehow making $33,437 in other income (not from jobs).

Does this make sense to anyone

 

[Montecfo]

I would advise checking your withholding against expectations periodically.

If you expect to be under withheld than you can ask for an additional amount to be withheld. All the PR processors can do this.

 

[Wile E. Coyote]

It's an Estimate. You can do a What If Analysis by changing the amounts in your return to see how it impacts your taxes. You can pay at least the same as you owed the prior year to avoid penalties.

 

[Al18]

Fill out the withholding form by having an additional $1638 withheld per year. 2024 is 17% over, so $1400 * 1.17 = $1638.

 

[jebmke]

I used to just tell payroll "take out X every period" and that's what they would do. Not all payroll departments will do this for you but worth a try. In December I'd figure out where I thought I might be and then when the bonuses were declared but not paid, I would tell the "take out Y" to true things up.

 

[ArmchairMillionaire23]

I would advise checking your withholding against expectations periodically.

If you expect to be under withheld than you can ask for an additional amount to be withheld. All the PR processors can do this.

I'm going to finish filing tomorrow to double check everything. I plan on having additional $$ withheld the rest of the year to balance everything out. It's just weird that this has never happened before. And it's weird that the IRS would suggest I claim $33K in untaxed income to adjust my withholding.

 

[Kork13]

AM23, I'm in exactly the same spot. I just did my first run at our 2023 taxes, and it says I'll owe ~$1300. By contrast, 2022 was abnormally high, with an $800 refund. I'll just barely squeak by on the safe side of an underpayment penalty (withheld slightly more than last year's total tax). I figured out what changed in our tax picture to create the difference .... but when I tried to figure out how to fix my W4 to not owe so much, it's completely incomprehensible.

It's extremely aggravating that I have to do the stupid guess and check on my withholding, waiting for a month between each adjustment to see if it worked well enough to be acceptable. Even just a simple field that would tell me "this combination of income + dependents + other factors will have $XXX withheld monthly" .... That would be incredibly helpful.

I really wish that I could skip the W4 entirely & just tell the payroll system "withhold $XXX/mo", or a specified percentage of base/bonus pay. It works with 401k's, why can't we do the same with taxes?

 

[Wile E. Coyote]

AM23, I'm in exactly the same spot. I just did my first run at our 2023 taxes, and it says I'll owe ~$1300. By contrast, 2022 was abnormally high, with an $800 refund. I'll just barely squeak by on the safe side of an underpayment penalty (withheld slightly more than last year's total tax). I figured out what changed in our tax picture to create the difference .... but when I tried to figure out how to fix my W4 to not owe so much, it's completely incomprehensible.

It's extremely aggravating that I have to do the stupid guess and check on my withholding, waiting for a month between each adjustment to see if it worked well enough to be acceptable. Even just a simple field that would tell me "this combination of income + dependents + other factors will have $XXX withheld monthly" .... That would be incredibly helpful.

I really wish that I could skip the W4 entirely & just tell the payroll system "withhold $XXX/mo", or a specified percentage of base/bonus pay. It works with 401k's, why can't we do the same with taxes?

https://apps.irs.gov/app/tax-withholding-estimator

 

[Kork13]

https://apps.irs.gov/app/tax-withholding-estimator

Yeah, appreciate that

Probably a browser issue or something, but I can't even get their calculator past the first screen -- spinning wheel of doom.

Still doesn't resolve the fact that their calculator & forms & everything else are inordinately opaque. Regardless of what numbers it spits out, I can't know what dollar figure will be withheld until I see my next paycheck.

 

[Jerry1]

I just had to do this. The form is abysmal. What I did was, fill out the personal information and put N/A in sections 2 and 3. Then in section 4 (line 4c) where it asks about an additional amount to have taken out, I put the amount that I want taken out. I then wrote a note in the blank space stating that I was using safe harbor rules and want that amount taken out from each check. I sent it to Fidelity, who manages my pension for my employer. I'm hoping in their world, they can just file the form and ignore the expected inputs that aren't there and just change the number on their system. I'll know on March 1st if it worked.

 

[Gumby]

....
I really wish that I could skip the W4 entirely & just tell the payroll system "withhold $XXX/mo", or a specified percentage of base/bonus pay. It works with 401k's, why can't we do the same with taxes?

I wished for this option for years for my pension checks. A wish that was never fulfilled. So I estimated my taxes before the year started and revised my W-4 to some combination of exemptions and additional tax withheld and then saw what that meant in real dollars on the the next check. Then, I adjusted as necessary to have the proper tax withheld by the end of the year.

However, one of our pension payors has been unable to implement even these easy W-4 changes and has repeatedly screwed up the withholding, so this past year, I just did a tIRA withdrawal at the end of the year purely for taxes to even things up. And I think I'll just continue with that.

 

[Montecfo]

Yeah, appreciate that

Probably a browser issue or something, but I can't even get their calculator past the first screen -- spinning wheel of doom.

Still doesn't resolve the fact that their calculator & forms & everything else are inordinately opaque. Regardless of what numbers it spits out, I can't know what dollar figure will be withheld until I see my next paycheck.

Yes. The old allowances system was bad enough but you could figure it out and I think kiplinger had a good backward calculator. I never had to use the new system.

 

[cathy63]

Yeah, appreciate that

Probably a browser issue or something, but I can't even get their calculator past the first screen -- spinning wheel of doom.

Still doesn't resolve the fact that their calculator & forms & everything else are inordinately opaque. Regardless of what numbers it spits out, I can't know what dollar figure will be withheld until I see my next paycheck.

Dinkytown has a payroll deductions calculator here: https://www.dinkytown.net/java/payroll-deductions-calculator.html

You can fill out the top part the way you filled out the W-4 and the bottom part with your paycheck info. If you don't like the withholding it calculates, add more to the Other income or Other deductions lines in the W-4 until it does what you want.

The other way to calculate it is to do what your employer does. Fill out the worksheet on page 12 of IRS Pub 15-T. (For pensions, use the worksheet on page 10.)

 

[Wile E. Coyote]

Millions of people deal with it. The focus on getting it all to tie out so you neither owe or get a refund is maybe not a pursuit most want to engage in. I prefer for them to owe me.

 

[Jerry1]

Millions of people deal with it. The focus on getting it all to tie out so you neither owe or get a refund is maybe not a pursuit most want to engage in. I prefer for them to owe me.

The goal isn't necessarily to get close to the final liability. As in my case and as is true in making estimated payments, the goal is to meet the safe harbor requirements. It would be nice if they just recognized and provided a line for a flat amount to be taken out.

And while it's true that millions of people deal with it, I read an article a bit ago about how a bunch of people misunderstood the form and didn't get the results they were expecting.

 

[Wile E. Coyote]

The goal isn't necessarily to get close to the final liability. As in my case and as is true in making estimated payments, the goal is to meet the safe harbor requirements. It would be nice if they just recognized and provided a line for a flat amount to be taken out.

And while it's true that millions of people deal with it, I read an article a bit ago about how a bunch of people misunderstood the form and didn't get the results they were expecting.

For my entire life there has always been a line on the W-4 to have additional money taken out. If they left it to where Everyone fills in a blank most people would be under withheld. So, apparently it is more about collecting the correct amount of tax than it is inconveniencing someone to need to evaluate it more than one pay period.

 

[Jerry1]

The goal isn't necessarily to get close to the final liability. As in my case and as is true in making estimated payments, the goal is to meet the safe harbor requirements. It would be nice if they just recognized and provided a line for a flat amount to be taken out.

And while it's true that millions of people deal with it, I read an article a bit ago about how a bunch of people misunderstood the form and didn't get the results they were expecting.

For my entire life there has always been a line on the W-4 to have additional money taken out. If they left it to where Everyone fills in a blank most people would be under withheld. So, apparently it is more about collecting the correct amount of tax than it is inconveniencing someone to need to evaluate it more than one pay period.

Two different things. One says, follow the form and if you need/want additional money taken out, put the amount here. The other says, I'll pass on the calculation and just enter an amount to have taken out. As shown in this thread, when you follow the form, you can't know what the calculated amount is - so how can you know how much more needs to be taken out?

I know how many pension checks I get and I know once I've done my taxes exactly what my tax liability is for calculating safe harbor. Simple calculation and it ensures that enough is taken out - defined as ensuring that no penalty is assessed. I could care less whether I get a refund or not. I just don't want to pay penalties or interest.

 

[Montecfo]

^^^ true. ETA referring to Wile E. above.

That's why they used to require employers to report people claiming more than 14, then lowered to more than 10 allowances.

 

[Wile E. Coyote]

Two different things. One says, follow the form and if you need/want additional money taken out, put the amount here. The other says, I'll pass on the calculation and just enter an amount to have taken out. As shown in this thread, when you follow the form, you can't know what the calculated amount is - so how can you know how much more needs to be taken out?

I know how many pension checks I get and I know once I've done my taxes exactly what my tax liability is for calculating safe harbor. Simple calculation and it ensures that enough is taken out - defined as ensuring that no penalty is assessed. I could care less whether I get a refund or not. I just don't want to pay penalties or interest.

Once you know how much is taken out per pay period then you just multiply that by the number of pay periods to get your total withheld for the year. You compare that to your Tax Paid for the prior year and if there is a difference you divide that amount by the number of remaining pay periods (leaving a buffer for processing time because you submit a new W-4 with the additional amount per pay period to withhold). Now you have matched last year's tax paid and as long as you pay anything you owe by 4/15 the following year there is no penalty.

If your pay is variable I'm not sure what to tell you. I have just always over withheld (problem solved).

 

[Jerry1]

Once you know how much is taken out per pay period then you just multiply that by the number of pay periods to get your total withheld for the year. You compare that to your Tax Paid for the prior year and if there is a difference you divide that amount by the number of remaining pay periods (leaving a buffer for processing time because you submit a new W-4 with the additional amount per pay period to withhold). Now you have matched last year's tax paid and as long as you pay anything you owe by 4/15 the following year there is no penalty.

If your pay is variable I'm not sure what to tell you. I have just always over withheld (problem solved).

So you think a two step process that requires filing the same form twice (at a minimum) is okay? I get that it can be done that way, I guess I just want better from our government.

 

[Wile E. Coyote]

So you think a two step process that requires filing the same form twice (at a minimum) is okay? I get that it can be done that way, I guess I just want better from our government.

Are you serious. I am old and I have never given this a second thought. Hire someone to do it for you I guess. How much money do you think the collective/government should spend to determine your personal tax withholding. I find this conversation has turned absurd -- I'm out.

 

[Jerry1]

Are you serious. I am old and I have never given this a second thought. Hire someone to do it for you I guess. How much money do you think the collective/government should spend to determine your personal tax withholding. I find this conversation has turned absurd -- I'm out.

I'm absolutely serious. I'm quite certain I'm capable of doing it myself, being a retired CPA, but to have added a line to the form that allowed someone to just put the amount they wanted taken out seems very efficient and effective. I can't see how it would have increased the cost of the revised form by any noticeable amount and it would save money in the long run by being more straight forward.

 

[ArmchairMillionaire23]

OP here-

It used to be that if you claimed zero, it was like you were on cruise control. Maybe they withheld a little too much, but if you filed your tax returns early enough, you got it back in February as a refund. And you never had to pay federal taxes when you filed your taxes or were threatened with a penalty.
Now it seems that if you're married, you need to claim -2. (I wish that were possible)

I re-did all our tax forms yesterday and it's not as bad as I originally posted. We still owe $658 Federal but the threat of a penalty has gone away. (DWs $6500 IRA contribution showed up on the Saver's Credit form, but not on the IRA contribution form for some reason) Claiming zero has helped with our state tax return, as we will be getting more than enough of a refund to cover the federal tax owed.

So on Monday I'm filling out a new W-4 form to still claim zero and have an additional $50 withheld in federal taxes to make sure enough is taken out to cover our tax liability for 2024.

I still think it's ridiculous that if I only work 40 hours a week, and I max out my 401(k) contribution (which comes out to about 50% of my gross income) according to the IRS, my total income on my W-2 would still be around $30,000. Yet my federal taxes withheld is still zero. DW makes around $20,000 as a teacher and her withholding is - you guessed it - zero.

So between the two of us we'll have about $50K in income shown on our W-2s yet the federal government still doesn't withhold any taxes from our paychecks even if we claim zero on the W-4. The standard deduction for us is $27,700 this year, but we'll still be in the 12% tax bracket. And 12% of ~$22.3K is still over $2600.

This does not make any sense to me at all.

 

[freedomatlast]

Due to higher dividends than normal, higher rental income than normal and higher fixed income interest than normal, I'm going to owe over $6800 and a penalty this year. This will be the first time ever, I will owe a penalty. Last year I got a refund of about $8000 with the exact same withholding amounts. I agree the W4 makes it difficult to just take out XXX more than last year. You can't just fill in line 4C only on the W4 to have XXX more than last year with held. That's why I'm just going to make equal quarterly payments via EFTPS this year and skip the whole W4 nonsense

 

[cathy63]

So on Monday I'm filling out a new W-4 form to still claim zero...

There is no such thing as claiming zero! The old zero, one, two language referred to exemptions. Congress did away with those in 2017 when they passed the Tax Cuts and Jobs Act. Nobody gets any exemptions nowadays, so they aren't even on the W-4 form any more.

So between the two of us we'll have about $50K in income shown on our W-2s yet the federal government still doesn't withhold any taxes from our paychecks even if we claim zero on the W-4. The standard deduction for us is $27,700 this year, but we'll still be in the 12% tax bracket. And 12% of ~$22.3K is still over $2600.

This does not make any sense to me at all.

Sounds like your employers either didn't enter the info from your W-4s into their payroll systems correctly or their systems are doing the math wrong. If you check the box for Married Filing Jointly in 1c and Multiple Jobs or Spouse Works in 2c, then the annual withholding from a job that pays $30K should be $1718, not $0. With the same settings on the W-4, the annual withholding from a job that pays $20K should be $615, not $0. So something is screwed up in the payroll process or you put something in the dependents or deductions sections of the W-4s.

Also, you are misunderstanding the tax brackets. Your marginal tax rate is 12%, but not all your income falls in that bracket. You will pay 10% of the first $22K and 12% of the remaining $300. So your actual tax would be ~$2236. (It comes from a table lookup, not a calculation, so it might be a couple dollars less or more.)

So, if you checked the two boxes mentioned above on each of your W-4s at the beginning of last year, and your employers transcribed them into their systems correctly, you would have had withholding of $1718 + $615 = $2333 and tax of $2236 and you would be due a refund of $97.