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Well it's a new year and time to fill out a new W-4 to reflect numerous life changes over the last year. The new wife (one of the life changes) and I sat down and filled out the first page of the W-4, and wound up figuring 3 exemptions for me and 2 for the wife (we both work).

Then we noticed at the bottom, "For accuracy, complete all worksheets that apply." This included the "Two-Earner/Two-Job Worksheet on Page 2". So we filled this sucker out, and it revealed that we should not only be not claiming any exemptions, but we should be asking our employer to withhold an extra $200 each! "Egads," we thought. "This can't be right." Can it? Obviously these worksheets don't take into account everyone's situation, but is it possible that the typical married couple really pays this much tax, or is this in an absolute worst case scenario?

Thanks for any help, this will really require altering our budget somewhat :)

Sam
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JoeSchmoe wrote:
The new wife (one of the life changes) and I sat down and filled out the first page of the W-4, and wound up figuring 3 exemptions for me and 2 for the wife (we both work)...Then we noticed at the bottom, "For accuracy, complete all worksheets that apply." This included the "Two-Earner/Two-Job Worksheet on Page 2"...it revealed that we should not only be not claiming any exemptions, but we should be asking our employer to withhold an extra $200 each!...

Gee, the gummint worksheet figures you should be paying more tax? Why am I not surprised?

"But it means a bigger refund!" you exclaim. (That's a generic "you," not you, JoeSchmoe. :-)

<sarcasm>
Right. Let the gummint have my money all year, then get it back with no interest paid on it. Yep. Golly, that's the kind of deal I want!
</sarcasm>

I always claim the highest number of exemptions I think I can get away with (this year it's seven), and I never even knew there was a worksheet. I owe tax every year, but the money is working for me in the interim.

Piz
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Well it's a new year and time to fill out a new W-4 to reflect numerous life changes over the last year. The new wife (one of the life changes) and I sat down and filled out the first page of the W-4, and wound up figuring 3 exemptions for me and 2 for the wife (we both work).
Then we noticed at the bottom, "For accuracy, complete all worksheets that apply." This included the "Two-Earner/Two-Job Worksheet on Page 2". So we filled this sucker out, and it revealed that we should not only be not claiming any exemptions, but we should be asking our employer to withhold an extra $200 each! "Egads," we thought. "This can't be right." Can it? Obviously these worksheets don't take into account everyone's situation, but is it possible that the typical married couple really pays this much tax, or is this in an absolute worst case scenario?

Thanks for any help, this will really require altering our budget somewhat :)
Sam


Sam -- I'm not a tax lawyer, and my guess is that piz, with his response, isn't either. It's entirely possible that two incomes could produce a need for additional withholding without that producing any refund at all. In such a scenario you would be better off not under withholding (claiming excesss exemptions); under extreme circumstances that can get you in trouble, even with our new "user friendly" IRS.

Since you're here on the Internet, you've obviously got a computer at your disposal. Assuming it's one at home, where you have the leeway to add software too -- I'd recommend you get a copy of TaxCut or TurboTax, even one from last year (which should be very inexpensive) and run your numbers through that, as if you're actually filling out the 1040. That will give you a far more accurate picture of what you'll end up owing at year's end. You can then fill out the W-4 accordingly. In fact, TaxCut (and probably TurboTax as well) even offers W-4 modeling, as I recall.

As a side advantage, assuming you also do some buying and/or selling of stocks, having such a software program enables you to predict the tax consequences of your investment decisions, if that should be a major factor. (It may not be now, but as years go on, the family grows, etc. etc.)

A question: do you itemize deductions? If you have any extensive deductions (charitable contributions, state and local income or real estate taxes, mortgage interest, etc.) then you certainly should do that. Itemizing deductions can have the effect of reducing the tax bill, perhaps eliminating the need for that additional withholding. Again, the programs are great help in running those numbers and telling you whether or not to itemize or just take the standard deductions....

(I don't own stock in any of those software companies; just believe in using the tools!)

mathetes
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The flip side of making sure you have you deductions figured approximately correctly is estimating your income not from wages. I have rental income, and so I have extra money withheld. If I didn't do that I would also have to pay estimated tax quarterly, and in fact that's what I do do on my State income taxes.
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[[ Well it's a new year and time to fill out a new W-4 to reflect numerous life
changes over the last year. The new wife (one of the life changes) and I sat
down and filled out the first page of the W-4, and wound up figuring 3
exemptions for me and 2 for the wife (we both work).]]

Nice that you sat down and put some numbers in the boxes, but what did you use as justification for making your exemption decisions? Just a feeling? 5 kids between the two of you? And how about your other income and deductions? Did you factor those into your numbers? If you didn't, then the exemptions that you claim are purely fiction, completely baseless. They may work out...or they may not. You may bread even with Uncle Sammy, or you may own him oddles of money.

Which is why the worksheets were enclosed with the W-4 form. By walking through the worksheets, you have some basis in fact for making your exemption claims.

[[ Then we noticed at the bottom, "For accuracy, complete all worksheets that
apply." This included the "Two-Earner/Two-Job Worksheet on Page 2". So we
filled this sucker out, and it revealed that we should not only be not claiming any
exemptions, but we should be asking our employer to withhold an extra $200
each!]]

This is VERY possible...

[[ "Egads," we thought. "This can't be right." Can it? Obviously these
worksheets don't take into account everyone's situation, but is it possible that the
typical married couple really pays this much tax, or is this in an absolute worst
case scenario?]]

I can only assume that you completed the worksheets correctly, and have arrived at the appropriate exemptions. By being married, and both working, you'll get hit with the "marriage penalty" big time. You can read more about the marriage penalty in my series of posts on that very issue in the Taxes FAQ area. You REALLY might want to check it out for additional information.

And if you REALLY want to sweat bullets...if you guys were married in 1998, you'll be filing jointly for your 1998 tax return. And if you were claiming goofy deductions and exemptions, you might be behing the 8-ball RIGHT NOW. I would suggest that you grab a 1998 1040 booklet and do some preliminary figuring. If you DO owe big bucks, I'm sure that you would rather know now as opposed to April 14th.

[[ Thanks for any help, this will really require altering our budget somewhat :)]]

Absolutely correct. Again, check out my post on the marriage penalty in the Taxes FAQ area.

TMF Taxes
Roy

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[[I always claim the highest number of exemptions I think I can get away with (this
year it's seven), and I never even knew there was a worksheet. I owe tax every
year, but the money is working for me in the interim.]]

And this is a great way to go, Piz. Once that I recommend to ALL of my clients (who I help with their withholding and exemption allowances). But you KNOW up front that you will owe money...and most likely about how much. So it's a really good deal for you...and for most people who do what you do (with knowledge in their hip pocket).

BUT...Many people who get married (both working)are simply SHOCKED when they file their first joint return and find out how much in tax money that they owe.

I'm no big fan of the W-4 worksheets. They DO compute a bit high. But they are really pretty good from an overall standpoint. And for most people, they are pleased to get a $500 refund as opposed to a $1,500 tax BILL.

TMF Taxes
Roy
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Piz,

I would be careful recommending that people under withhold with out informing of the penalties that can occur.

The money you have withheld from your pay during the current year must be greater than 100% of the previous years taxes or 90% of the taxes you owe for the current year.

Last year, I miscalculated and ended up paying an $8 penalty.

..IF
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Then we noticed at the bottom, "For accuracy, complete all worksheets that apply." This included the "Two-Earner/Two-Job Worksheet on Page 2". So we filled this sucker out, and it revealed that we should not only be not claiming any exemptions, but we should be asking our employer to withhold an extra $200 each! "Egads," we thought. "This can't be right." Can it? Obviously these worksheets don't take into account everyone's situation, but is it possible that the typical married couple really pays this much tax, or is this in an absolute worst case scenario?

Hello JoeSchmoe,

Funny thing is, back in September (I think) I did a similar calculation... became astonished I would need to have extra money withheld from my paycheck even when I claimed 0 deductions... and posted a note right here just like you! Looks like my situation is like yours. I have an extra amount withheld (both my wife and I work).

The bad news is that you probably do need to withhold extra. The others have filled you in on the marriage penalty and all that. I'll just try to point out the "silver lining" to this situation...

I got angry about my taxes in September (being a bear I tend to get grumpy too)... this has taught me to plan for taxes instead of reacting to a big bill. Finally, my wife, who is the eternal optimist (hard to believe she married a bear), summed it up best...

"The fact that we pay quite a bit in taxes is a good thing. That means we're doing pretty well financially, right? Paying taxes is a high quality problem. Now go get a beer and see your beloved Patriots win."

She was right about one thing, anyway.

Regards,

BostonBear
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[[The money you have withheld from your pay during the current year must be
greater than 100% of the previous years taxes or 90% of the taxes you owe for
the current year.]]

OR...for 1998...less than $1,000 balance due. That'll keep you penalty free for 1998. Prior to 1998, the amount was $500 balance due.

TMF Taxes
Roy
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[[I got angry about my taxes in September (being a bear I tend to get grumpy
too)... this has taught me to plan for taxes instead of reacting to a big bill.
Finally, my wife, who is the eternal optimist (hard to believe she married a bear),
summed it up best...

"The fact that we pay quite a bit in taxes is a good thing. That means we're doing
pretty well financially, right? Paying taxes is a high quality problem. Now go
get a beer and see your beloved Patriots win."]]

And while you certainly CAN have BIGGER problems that having a large tax bill...don't get too complacent.

Remember that this is YOUR money...money that YOU earned. Uncle Sammy many times wants you to think that it is HIS money...and he just lets you keep some because he's a nice guy. Nothing could be further from the truth.

So while I would agree with your lovely wife in general terms, don't get too complacent. Keep a little bit of the "growl" around.

TMF Taxes
Roy
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