Just did taxes...annoyed. Other people in the same boat?

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02/05/2019 09:56

Subject: Just did taxes...annoyed. Other people in the same boat?

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Anonymous

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm personally suprised by the people who say they are owing even with 0 withholdings. Did you all change to 0 half-way through the year? Are you sure you were actually at 0?

it's the withholding tables that were the problem that payroll based deduction off of. clearly you do not understand how taxes work. Additionally if you have 2 earners and they is a vast discrepancy in earnings, then the tax tables for withholding will be different, but at filing will cause you to owe.

The ignorance on this board sometimes makes me want to smash my head on my computer and then weep for our nation.

Well that's kind of my point - why would the withholding tables be so far off? Previously they were biased in favor of overwithholding. My understanding that the current tweak was aimed to get them closer to 0 liability -- not people owing $1000s, like they are stating here. I'm wondering how the IRS got it so wrong, since I doubt their intent was that people would owe $1000s with 0 exemptions.

The withholding tables are not off. Do you understand how income tax brackets work? The withholding tables having no idea how much your spouse makes and there is no way for your employer to know how much your spouse makes. So the withholding tables calculate your withholding based on you having a single income and that your income goes from $0-$X. However, if your spouse make $Y dollars, then your income is from $Y to $Y+X (from your income to your combined income). Likewise, your spouse's withholding is calculated based on being from $0-Y instead of from $X to $X+Y. So assume that you each earn $100K. Then your withholdings are set as if your total income was $100K and you are taxed from 0-100K. Same for your spouse. But in reality, one of you is actually earning from $100K-200K so would be in a higher tax bracket. But the withholding table has no way of knowing what that $X value would be to add to your income for withholding. So, it is up to you as an individual to gauge how much additional money to set aside depending on how much your spouse earns. The higher your spouse's income, the more you should set aside each pay period to account for the higher net income of the household.

If you want an idea, here are the adjusted income tax brackets for 2018:

So if you each made $100K, then one of you would be paying 10%, 12% and 22% of your income. But the other partner is paying 22%, and 24% on their income.

If you each made $200K, then one of you is paying 10%, 12%, 22% and 24%. The other partner is paying 24% and 32% taxes on their income.

But, as I said, the withholding tables have no idea how much your spouse makes, so there is no way to withhold based on an unknown additive number. So it's up to you to figure out ballpark how much you'll owe and adjust your withholding to account for your spouse's income.

It has always been the case that dual income households need to review the withholding tables and adjust accordingly. The issue this year is that, with no changes to to their W4s, an unprecedented number of taxpayers went from being overwithheld to being underwithheld. That's an issue with the withholding tables.

The fact that the IRS is temporarily lowering the safe harbor threshold to waive the underpayment penalty for some taxpayers and is, for the first time, allowing employees to adjust their W4s up until May 2019 if they find, upon filing taxes, that they underwithheld suggests they themselves agree that the 2018 tables have issues.

It's also worth noting that even for those who were so inclined--I usually run our taxes mid-year since I am self-employed so that we can adjust the last two estimates--there was no way to see the draft tax forms until the fall, so even if you did do this and discovered at that point that you had underwithheld significantly, there wasn't much time to correct it. We bumped up our last two estimates and threw additional money into the final couple of months of payroll withholding for DH so we will only owe a few hundred (with a total tax liability that's about the same as last year since the SALT changes wiped out any gain from the tax cuts for us), but many people are just finding out now.

Yes, but most people, even high earners, don't do that. They don't review the withholding tables. They just guesstimate adjusting their taxes if they owed a lot the previous year and then they just add money based on what they owed last year (e.g. "we owed $5, so we each withheld $200 extra a month"). I ran our taxes a few months before the end of the year using the tax brackets shown above and the tax calculator on the IRS web-site. They were rough estimates, but I used them to tweak our taxes. We will get about $500 back federal and $1000 back state, so it worked pretty well, getting that close considering the changes.