Question for those who are married filing jointly taxes (two incomes in the household)

[holeydonut]

I have a random question on what you all do with taxes in a household with two incomes.

Yes, asking random internet strangers beats trying to figure out what my friends and co-workers do. Assume zero kids, no EV-tax-credit, no 401k, and no mortgage to simplify this a bit.

• Let's pretend Bob and Jane are married. Bob makes $75,000, Jane makes $100,000 per year.
• If Bob sets his payroll form W-4 to "married" then his employer will follow IRS Pub 15-T and take out about $5,236 for federal taxes in a year.
• If Jane sets her payroll form W-4 to "married" then her employer will take out about $8,236 for federal taxes in a year.
• Together that is $13,472... on a total combined income of $175,000... this is only about 8%.

The problem is Bob's employer doesn't care what Jane makes, and Jane's employer doesn't care what Bob makes. But under "married filing jointly", a combined income of $175,000 should have a statutory withholding around $23,000 (or 13%). And during a tax filing, it's likely the household effective tax rate will be around 11-12%. (This is because the combined household marginal tax rate is higher than the individual tax rates being deducted from Bob or Jane's paycheck).

So if this situation sounds familiar to you; how do you typically resolve this with your spouse? Do you each just elect to have some extra deduction each pay check? If so, how are you estimating the extra amount of withholding? Or, does your household simply just expect to pay the IRS every year during tax time?

Based on what I'm hearing from co-workers this is a super annoying thing, and yet no one seems to have a reasonable solution or guidance. They just get mad when they realize the IRS wants tax money lolz.

 

[DP26]

Nothing new here. The current w4 has easy than ever options for handling dual income.

 

[jjrandorin]

The problem with this thought experiment is, its likely disproportionally people in the area you live in (northern ca) that might fit that fairly defined set of circumstances (2 income family, 175k income, yet no mortgage, no kids, no other relevant deductions). In most places without the exceptionally high cost of real estate that NoCal has, that family owns at least 1 house.

 

[holeydonut]

The problem with this thought experiment is, its likely disproportionally people in the area you live in (northern ca) that might fit that fairly defined set of circumstances (2 income family, 175k income, yet no mortgage, no kids, no other relevant deductions). In most places without the exceptionally high cost of real estate that NoCal has, that family owns at least 1 house.

Yeah I was just taking out those for the sake of example. But it's pretty tough for most homebuyers to actually benefit from the mortgage interest deduction... many people just claim the standard deduction and it comes out favorably vs itemizing.

I just wanted to see if anyone out there actually used the new W-4 correctly... nobody at my work does hah. I guess TMC users use their W-4 correctly heh.

 

[DP26]

I do, in a way. Large additional deductions until Q4. Run a sample return and see likely liability. Adjust w4 to get desired withholding and if needed, make manual deposit.

For simplicity, do the math after Q1. Make sure the amount withheld for Q1 x 4 = at least 90% of prior year liability. If not, adjust w4.

Or, get your tax preparer to fill it out as part of your return, and have them review and advise at end of Q2. If they refuse, you need a new preparer.

 

[holeydonut]

So @DP26 seems to have his stuff in order lol. But since 99.99999% of workers do not behave like DP26, I think the issue is stemming from how major HRIS/Payroll systems guide people when they join a company's payroll. There is no reasonable way a normal person would be able to see plainly that they may want to consider an extra withholding.

A standard Workday implementation does some really poor language/drop-downs. It's unlikely a person would understand during on-boarding unless they were a tax pro (or named DP26).

A standard ADP implementation just points people to the IRS withholding calculator. It's unlikely a person would understand what the IRS is babbling about during on-boarding unless they were a tax pro (or named DP26).

This form is on the IRS W-4, but as far as I can tell, the Workday/ADP W-4 workflow doesn't actually make this table visible when someone is in the HRIS/Payroll system.

Anyway, if you know someone that (along with with their spouse) believes their employer "screwed up the withholding" on the federal taxes in 2022, it could be because their W-4s weren't filled in correctly.

 

[DP26]

It is NOT the employer or payroll processors place to meddle in the employee’s finances. The employee has to manage their own finances, including w4. No employer or processor should be leading an employee other than “here is the form”. The employer even has an out of the employee fails to supply a valid form.

While all since at least Reagan have fuddled with withholding for political reasons, the former President went too far; making the W4 form, without careful thought, insufficient to meet tax burden for a large number of employees. The current President has not fuddled with WH as there is nothing left to play with and he, like all we elect; are deathly afraid to be tied to any increase on the working class, even when needed.”, and in this case, not even an increase.

Yea, I am a payroll pro of 40+ years. I get, even this late in the year, daily questions asking why WH is not “enough”. Far too many employees believe the employer or IRS is responsible for the employee’s finances. Many have adapted to the new W4. Currently the issue is not understanding the highest inflation in many years adjusted the withholding brackets more than most remember.

 

[holeydonut]

You're missing my point that the page 4 of the W-4 isn't shown to people when they're in Workday. So that estimator you're familiar with for some reason isn't being viewed by a lot of folks because they only see a (terrible) GUI instead of the W-4.

 

[DP26]

Seriously, all it takes is looking at last years 1040, and dividing the tax liability by your paydays per year. Look at your stub. If the WH is not what the above calculates, modify your w4. If you like the IRS to function as your piggy bank, tack on the desired amount of additional withholding.

 

[holeydonut]

Seriously, all it takes is looking at last years 1040, and dividing the tax liability by your paydays per year. Look at your stub. If the WH is not what the above calculates, modify your w4. If you like the IRS to function as your piggy bank, tack on the desired amount of additional withholding.

Eh, it's more like...

1. Look at last year's 1040
2. Divide the federal tax liability by your paydays per year (X)
3. Obtain pay stubs for your spouse and yourself
4. Calculate the combined federal withholdings each pay period for your spouse and yourself (Y)
5. Calculate the difference between (X) - (Y) = (Z)
6. Bicker with your spouse over who needs to add what extra withholding so the sum total of extra withholdings equals (Z)
7. Complain to your company about why this shizz is too difficult or the company is doing withholding wrong
8. Post thread on TMC's off topic forum
9. Blame the President

Steps 7, 8, and 9 are easy. Based on what I'm seeing in these HRIS reports, a very small % of the population knows how to do 1-6.