Tax withholding for newly married couple with semi-disparate incomes?

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YetAnotherUser
Posts: 14
Joined: Mon Nov 27, 2017 3:24 pm

Tax withholding for newly married couple with semi-disparate incomes?

Post by YetAnotherUser » Thu Jan 25, 2018 3:37 pm

Hello

I got married last year and we have not update our W4's to change our withholding. I'm not sure what we should put for 2018 but want to make sure we don't have too much or too little tax withheld, if possible.

Earner 1: ~105k. ~8k to 401k, 3600 to HSA
Earner 2: ~55k. 18k to 401k

No dependents. Standard deduction. We will be Married filing jointly, but for all of 2017 we were withholding as single, 1 allowance IIRC.

Any recommendations? Should Earner 1 withhold more from their paycheck? Just switch to Married filing jointly with 0 allowances? Not really sure what to do here.

Asked my accountant but he's taking a while to get back to me and I'm impatient :)

Compound
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Joined: Mon May 26, 2014 1:32 pm

Re: Tax withholding for newly married couple with semi-disparate incomes?

Post by Compound » Thu Jan 25, 2018 9:27 pm

Although I haven’t done it personally, I’ve seen some suggest using tax software to estimate taxes, then work backwards by placing a high number of exemptions and then putting the estimated tax due into the additional withholding area (by dividing the total tax due into the number of paychecks). But I suspect you won’t be doing this since you use an accountant and therefore almost certainly don’t use tax software anyway.

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FiveK
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Re: Tax withholding for newly married couple with semi-disparate incomes?

Post by FiveK » Thu Jan 25, 2018 11:27 pm

YetAnotherUser wrote:
Thu Jan 25, 2018 3:37 pm
Hello

I got married last year and we have not update our W4's to change our withholding. I'm not sure what we should put for 2018 but want to make sure we don't have too much or too little tax withheld, if possible.

Earner 1: ~105k. ~8k to 401k, 3600 to HSA
Earner 2: ~55k. 18k to 401k

No dependents. Standard deduction. We will be Married filing jointly, but for all of 2017 we were withholding as single, 1 allowance IIRC.

Any recommendations? Should Earner 1 withhold more from their paycheck? Just switch to Married filing jointly with 0 allowances? Not really sure what to do here.

Asked my accountant but he's taking a while to get back to me and I'm impatient :)
Based on the personal finance toolbox spreadsheet, having both earners use "Single with 3 allowances" would result in $41 due at filing.

You could put in your own numbers to verify.

If January was withheld at a higher rate, you would likely get a small refund at filing.

fourwheelcycle
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Joined: Sun May 25, 2014 5:55 pm

Re: Tax withholding for newly married couple with semi-disparate incomes?

Post by fourwheelcycle » Fri Jan 26, 2018 10:02 am

The bottom line rule is:

If your Adjusted Gross Income (AGI) last year was $150,000 or less, and your total withholding this year is on track to equal or exceed your total income tax liability last year, you don't need to adjust your withholding or make any estimated tax payments, no matter how high your income is for this year.

If your AGI last year was greater than $150,000, your withholding and estimated tax payments this year must equal at least 90% of this year's income tax liability or 110% of last year's income tax liability.

For the OP, I'd total his own and his wife's tax returns for last year to calculate the baseline for total AGI and total tax liability, assuming they filed separately last year and are filing jointly this year.

I hate to withhold 110% of my tax liability, so I guess at this year's AGI divided by last year's AGI and increase my withholding by that proportion. For example, $180K/$165K = 1.09, so I would make sure this year's total withholding is on track to equal 109% of last year's total income tax liability.

If you look at your December pay stubs and realize you are off you can send in an estimated tax payment in early January (not recommended as a regular practice, but it works in a pinch).

When I was working I made more than my wife and I also had a closer relationship to my organization's payroll office. She always kept her withholding exemptions set a one person, so she had minimal withholding. I took most of our withholding from my paycheck. Whenever I did our taxes and noticed our withholding was close to the 90 percent minimum I called the payroll office and asked them to increase my withholding to a new set dollar amount. I never dealt with numbers of exemptions.

TOJ
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Re: Tax withholding for newly married couple with semi-disparate incomes?

Post by TOJ » Fri Jan 26, 2018 10:07 am

I'd do single/0 for both of you until the IRS witholding calculator is ready. https://www.irs.gov/individuals/irs-wit ... calculator

Once it's done, plug in all your actual numbers and see how much tax you will owe. Then, set both your exemptions to something like married/30 (to effectively have 0 dollars withheld) and in the "additional withholding" box, put in the number of dollars required to meet what the calculator said. Divide that amount between the two W4s.

mortfree
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Joined: Mon Sep 12, 2016 7:06 pm

Re: Tax withholding for newly married couple with semi-disparate incomes?

Post by mortfree » Fri Jan 26, 2018 10:08 am

YetAnotherUser wrote:
Thu Jan 25, 2018 3:37 pm

Any recommendations? Should Earner 1 withhold more from their paycheck? Just switch to Married filing jointly with 0 allowances? Not really sure what to do here.
why doesn't earner 1 contribute more to the 401k, instead of having more withheld and given to the IRS?

Do you have Roth accounts?

Topic Author
YetAnotherUser
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Joined: Mon Nov 27, 2017 3:24 pm

Re: Tax withholding for newly married couple with semi-disparate incomes?

Post by YetAnotherUser » Fri Jan 26, 2018 10:29 am

mortfree wrote:
Fri Jan 26, 2018 10:08 am
YetAnotherUser wrote:
Thu Jan 25, 2018 3:37 pm

Any recommendations? Should Earner 1 withhold more from their paycheck? Just switch to Married filing jointly with 0 allowances? Not really sure what to do here.
why doesn't earner 1 contribute more to the 401k, instead of having more withheld and given to the IRS?

Do you have Roth accounts?
Two Roth IRA's. Slowly working our way to Earner 1 contributing max. Part of it is hedging - planned job move to a company with 401(k) matching, but nothing's for sure yet...could be more diligent on this for sure though.

Thanks to everyone for the advice/feedback.

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