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I'm getting a head start on this year's income taxes for my wife and I. I have my W-2 already and I have her last paystub for the year.

I claimed one exemption on my W-4, and according to her paystub, she claimed zero. We do our taxes married filing jointly, and have no dependents. We both work full-time.

Somehow, we still owe $500 according to my tax software.

How is this possible? I would have assumed by her claiming zero, they would have withheld more tax from her paycheck, resulting in a refund.

More info:

  • No other taxable income besides our two full-time jobs. I run a single-member LLC, but take no income from it at all.

4 Answers4

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The W-4 functions best when there is a single earner with a single job. When there are multiple earners and/or multiple jobs per earner, it doesn't function quite as well (without additional withholdings). The employer, who is deducting taxes from your paycheck, is only aware of the pay that you are earning from them.

Consider the case where an individual makes $100k (after deductions) and their spouse makes $0. Using the 2015 tax brackets, that couple owes ~$11,400 in federal taxes.

Now consider the case where an individual makes $100k (after deductions) and their spouse makes $100k (after deductions). Using the 2015 tax brackets, that couple owes ~$37,200 in federal taxes.

The problem is now clear. If each earner is withholding $11,400, they will still be short over $14k. You're experienced something similar, just in a much smaller amount.

If you have self-employment income, then this gets complicated further. Your best bet is to find a calculator online that will take your anticipated salaries as inputs, and tell you how much additionally to withhold using your W-4.

Derek
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Don't use the guide on the W-4 itself to calculate your exemptions. It's often wildly inaccurate.

Instead, use a Payroll Deduction Calculator like this one. Adjust the number of exemptions until the witholding is more reasonable, based on last year's tax return numbers.

Robert Harvey
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What the accepted answer failed to explicitly mention is the root cause behind the phenomenon, which is twofold:

and

In essence, when your and your wife's salaries are combined, you enter a new, higher tax bracket. That means the additional amount above the last tax bracket is taxed at a higher percentage than either of your withholding charts would indicate.

MrWonderful
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Unless you can't estimate your 2017 income, there's just no reason not to do the math. Apparently you know how much you'll owe for 2016? Increase all amounts (or decrease) to reflect what you expect for 2017. Then work through the IRS W-4 calculator and compare what they estimate your taxes will be (say $14,000) and what you calculate they are (say $16,000). The difference should be divided by the number of paychecks you get each year (say 24) and put on line 6. If you really want a big refund (you lack the discipline to save regularly) then check the box on line 3 which allows married to be treated as single. The other obvious issue that needs to be addressed is: are you sure you're not making a mistake on your taxes? Unlikely with tax prep software, I grant you. You should also do two other things: 1. Take a look at your and spouses 1st 2017 pay stub, see how much they're now taking out and check again after your new withholding kicks in. Make sure it adds up to total you expect to owe (plus or minus) 2. Sometime this July, check again.

Li Zhi
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