Generally speaking how should my spouse and I handle our withholdings so we don't owe money each year?

[Emack_EA · Accepted solution]

Hi, thanks for being here.

To avoid owing money in the future you should adjust your withholding so that the right amount of federal and state income tax is taken from your paychecks throughout the year. Here are a few ways to do that:

1- use the IRS tax withholding estimator Google "IRS withholding Estimator"

2- Update form W-4 with your employers and fill out the form with the correct information and update any extra withholding suggested by the estimator

3-Consider other income sources such as 1099s, other W2s, Investment income etc..

Please let me know if you need more information.

[Zachary_W · Accepted solution]

You should report any additional income earned from a second job on the highest earners Form W4 and increase the withholdings in the extra withholdings section of the Form W4. You will locate the appropriate amount in the worksheet for multiple jobs found in the instructions. 

For married taxpayers, coordinating the withholdings is essential, given the potential combined income to affect tax brackets and tax liabilities. The goal is to withhold enough to match your tax liability, avoiding both a large tax bill and overpaying, which effectively gives the government an interest-free loan.

Key Steps to Adjust Withholdings

To ensure you and your spouse do not owe money each year:

1. Understand Your Tax Situation
   • Combined Income and Filing Status: Most Couples benefit from filing jointly, which doubles certain deductions. However, calculate both joint and separate filing options to determine the most advantageous approach. 
   • Deductions and Credits: Account for eligible deductions (e.g. mortgage interest, charitable contributions) and credits (e.g. Child Tax Credit) that reduce taxable income. 
   • Use the IRS Tax Withholding Estimator.
2. Complete and Update Form W-4
   • Submit New Forms to include the Multiple Jobs Worksheet: If both spouses work, use the Multiple Jobs Worksheet to coordinate withholdings. This prevents under-withholding, which can lead to a tax bill. For example, if both earn similar amounts, check the box on Line 2c of Form W-4 to indicate this, ensuring proper withholding. 
   • Additional Withholding: Use Line 4c on Form W-4 to request extra withholding if you anticipate owing more due to non-wage income or other factors. This can help cover potential shortfalls. 
3. Review and Adjust Periodically
   
   • Annual Review: Check withholdings at least once a year, especially after major life events. The IRS recommends a "Paycheck Checkup" to ensure withholdings align with your tax liability.
   • Monitor Paystubs: Regularly review paystubs to confirm correct amount is being withheld. 

Additional Resources

• IRS Publication 505: Provides detailed worksheets and examples for tax withholdings and estimated tax.
• Form W-4 with Instructions plus Multiple Jobs Worksheet.

Have an amazing day! Zachary W (CPA 9+ years)
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