How many withholding allowances for married working couple?

[countofmc]

Ever since my wife and I got married, we've had wildly disparate and unpredictable incomes. For the first time, we expect our incomes to be nearly identical (within 2-3k of each other) in 2013.

Our tax filing is also very straight forward. MFJ and will not itemize.

The IRS withholding calculator seems to be down right now.

So for married couples that make near identical incomes, how many withholding allowances do you claim on your W-4? Bonus if you live in CA like we do and can share what you do for the DE-4 as well.

We want to avoid huge tax refunds, but also want to avoid owing if at all possible. Right now I'm having my wife claim Single 0 on both Federal and State. I'm doing Married 1 for Federal and Single 2 for State. This seems pretty accurate, but not sure...

[livesoft]

Just calculate what your taxes should be and divide by number of paychecks. Then set your withholding to pay that amount out of each paycheck. Right now I'm having $20 withheld per paycheck which is probably too much. I am married and have 2 kids.

If you can't get your payroll folks to tell you how much would be withheld from your paycheck given a number you would put on a W-4, then just put a number and see how much tax is withheld from your next paycheck. If the tax withheld doesn't match your calculation (my 1st sentence), change the number and see what happens with the next paycheck. Repeat until done.

[Aptenodytes]

Just calculate what your taxes should be and divide by number of paychecks. Then set your withholding to pay that amount out of each paycheck. Right now I'm having $20 withheld per paycheck which is probably too much. I am married and have 2 kids.

If you can't get your payroll folks to tell you how much would be withheld from your paycheck given a number you would put on a W-4, then just put a number and see how much tax is withheld from your next paycheck. If the tax withheld doesn't match your calculation (my 1st sentence), change the number and see what happens with the next paycheck. Repeat until done.

This is more or less what I do. My income is also somewhat unpredictable, so I simply aim to have withholding equal last year's tax and I come out OK.

My employer has a nice option of specifying, in addition to the silly allowance numbers used by the IRS, an additional dollar amount. So I start the year with the silly allowance number (something like 12) and then figure out how much additional needs to be withheld to total last year's tax. Maybe you can do something similar. Such a process lets you hit the withholding total right on the nose, with just one form to fill out with the employer.

[jmg229]

Just calculate what your taxes should be and divide by number of paychecks. Then set your withholding to pay that amount out of each paycheck. Right now I'm having $20 withheld per paycheck which is probably too much. I am married and have 2 kids.

If you can't get your payroll folks to tell you how much would be withheld from your paycheck given a number you would put on a W-4, then just put a number and see how much tax is withheld from your next paycheck. If the tax withheld doesn't match your calculation (my 1st sentence), change the number and see what happens with the next paycheck. Repeat until done.

I second this, except rather than try to get an answer out of HR or guess and check, try using the calculators at http://www.paycheckcity.com/. I have found them very accurate for straightforward situations and are what I use. We also have two disparate and varying incomes, so every time something changes, I update my spreadsheet that does a rough calculation of our expected taxes, figure out what the new withholding should be, and play with numbers on paycheckcity.com until it works out.

[G-Money]

Why not just follow the instructions on the W-4? http://www.irs.gov/pub/irs-pdf/fw4.pdf

Be sure to also complete the Two-Earners/Multiple Jobs Worksheet on page two.

[jmg229]

Why not just follow the instructions on the W-4? http://www.irs.gov/pub/irs-pdf/fw4.pdf

Be sure to also complete the Two-Earners/Multiple Jobs Worksheet on page two.

I find that this rarely works out properly, especially with AGI-reducing deductions to factor in (like student loan interest). It also rarely works for both fed and state at the same time for me.

[lostinjersey]

We both do Married, 0. I usually check where we stand mid-year and adjust accordingly. Last year I had an additional $100 withheld per month, then DH got an unexpected year end bonus that was overwithheld, so we'll get a decent refund. Oh well.

Agree that the IRS withholding calculator is quite accurate.

[G-Money]

Why not just follow the instructions on the W-4? http://www.irs.gov/pub/irs-pdf/fw4.pdf

Be sure to also complete the Two-Earners/Multiple Jobs Worksheet on page two.

I find that this rarely works out properly, especially with AGI-reducing deductions to factor in (like student loan interest). It also rarely works for both fed and state at the same time for me.

Re student loans: see worksheet 1 on page 2. I believe deductible student loan interest would go on line 4.

I'm not sure what you mean about a form working for both federal and state at the same time. The W-4 is a federal form. It's designed to accurately calculate the amount of federal taxes that should be withheld. I would imagine that if your state has something over than a flat tax or no income tax, that it would have its own form to calculate the amount of state taxes to withhold. Unless your state precisely tracks the federal method of calculating taxable income, I'm not sure how the federal form could be expected to perform double duty.

[jmg229]

Why not just follow the instructions on the W-4? http://www.irs.gov/pub/irs-pdf/fw4.pdf

Be sure to also complete the Two-Earners/Multiple Jobs Worksheet on page two.

I find that this rarely works out properly, especially with AGI-reducing deductions to factor in (like student loan interest). It also rarely works for both fed and state at the same time for me.

Re student loans: see worksheet 1 on page 2. I believe deductible student loan interest would go on line 4.

Fair enough, you're right. It's been long enough since I've bothered trying to use the form, that I had forgotten about that. Thanks for pointing it out

I'm not sure what you mean about a form working for both federal and state at the same time. The W-4 is a federal form. It's designed to accurately calculate the amount of federal taxes that should be withheld. I would imagine that if your state has something over than a flat tax or no income tax, that it would have its own form to calculate the amount of state taxes to withhold. Unless your state precisely tracks the federal method of calculating taxable income, I'm not sure how the federal form could be expected to perform double duty.

This is where I have had problems. I have had my state just use my federal withholding but then end up in situations where they don't track right (as you'd expect), so I manually manipulate the withholding to try to get a net zero tax bill.

[og15F1]

I second this, except rather than try to get an answer out of HR or guess and check, try using the calculators at http://www.paycheckcity.com/. I have found them very accurate for straightforward situations and are what I use. We also have two disparate and varying incomes, so every time something changes, I update my spreadsheet that does a rough calculation of our expected taxes, figure out what the new withholding should be, and play with numbers on paycheckcity.com until it works out.

This

I keep a spreadsheet that projects our income and all paycheck deductions throughout the year on one worksheet. It links to a worksheet to calculate federal tax and another worksheet for state tax. I calculate based on TurboTax from the prior year and update as new amounts for deductions, exemptions, etc. are released.

If/when the income changes I look at how much tax needs to be withheld at the end of the year and goal seek the remaining paychecks to get that balance to zero. Then I use paycheckcity.com to calculate what my allowances should be. My HR person probably gets my new forms 3 times per year.

[interplanetjanet]

After spending several years with fluctuating incomes trying to "eyeball" allowances with various calculators, I gave up - these days I just run a midyear projection using the previous years' tax software. Based on the results of that I adjust my allowances to compensate for the second half of the year. It's not that much more work and it makes the following tax time a little more predictable (though obviously not completely!).

[Aptenodytes]

After spending several years with fluctuating incomes trying to "eyeball" allowances with various calculators, I gave up - these days I just run a midyear projection using the previous years' tax software. Based on the results of that I adjust my allowances to compensate for the second half of the year. It's not that much more work and it makes the following tax time a little more predictable (though obviously not completely!).

I like keeping things simple. I have given up on trying to project income over the current year. Instead all I aim for is making this year's withholding sufficient to avoid an underpayment penalty, which in practice means equal to last year's tax. I find that that goal is very easily met and is carried out with one calculation and one change-notice to my employer. When I complete this year's tax return, I figure out what adjustment I need to my payroll withholding to hit the right end-of-year target. Then I tell the employer the new number, and I'm all set for another year.

This doesn't make my withholding equal my tax bill, but I don't care about that. My income doesn't vary enough for it to matter. If the swings were a lot bigger I'd go through the hassle of estimating taxes more accurately.

[Frugal Al]

Use IRS Pub 15 and calculate the exact number of allowances necessary under your filing category to equal the estimated tax payable.