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Reply to "Tax penalty — why is this not automatic "
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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous] I guess I didn't really appreciate that we had moved from individual tax rates of 22% into combined tax rates of 35%... I mean we are still DCUM middle class and feel like we barely can afford living (expensive house, college costs, and generally we have invested too conservatively so no huge savings). Being 10% higher in tax bracket just wasn't on our bingo card.[/quote] You aren't paying 35% of your income to taxes, just FYI. Taxes are assessed in brackets. For 2024: you'll pay the following if you are married filing jointly: 10% for the first $23,200 12% for any income between $23,201 to $94,300 22% for any income between $94,301 to $201,050 24% for any income between $201,051 to $383,900 32% for any income between $383,901 to $487,450 35% for any income between $487,451 to $731,200 So if your taxable income is $500,000 (it probably isn't, though, if you are putting anything away in retirement) you are only paying 35% taxes on the amount that is over $487,451 500-000-487,451= $12,549 and 35% of that = $4392.15. That is about $4,000 that you are paying in tax just because your income hit the 35% tax bracket. [/quote] The difference is 3% of 12549....the rest would already be at 32%. So $376 extra in taxes for hitting the 35% bracket. That is clearly not the issue [/quote] Okay, OP, being in science/tech is no excuse for not being able to do basic taxes. Both my spouse and I are in IT and we manage to handle out taxes fine and have for the 22 years that we've been married. For the PP, they are not being taxed 32% on the money under the top bracket. OP is currently paying 10% for the first $23,200 = $2320 12% for any income between $23,201 to $94,300 = $8531.88 22% for any income between $94,301 to $201,050 = $23,484.78 24% for any income between $201,051 to $383,900 = $43,883.76 32% for any income between $383,901 to $487,450 = $33,135.68 35% for any income between $487,451 to $731,200 = $4392.15 (assuming $500K) Total = $115,748.25 = 23.15% This is the way bracketed tax brackets work. You pay lower percentage on the lower brackets and only pay the higher percentage on the income over the bottom threshold. OP, the main reason you owe extra money is most likely because you bumped into the higher tax bracket and your companies did not know that your combined income moved to a new bracket. What I do is after I file my taxes, if I owe money on the previous year, I calculate the amount I owed, round up (assuming you expect an annual raise) and divide by 26 pay periods (if paid bi-weekly) or 24 pay periods (if paid semi-monthly) and then my spouse and I divide that in half and we both file a new W-4 and add the amount to our withholdings. I keep PDF's of my W-4 on my laptop where I do the taxes and I can compare with last year's withholding to make sure that I get the right amount withheld based on this year's filing. [/quote]
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