W-4 Question

[clo5104]

Hello, I am Married Filing Jointly with my spouse, and we have a 1-year old child. However, every year it seems we are not putting enough of our paychecks towards our taxes, and get penalized. How many allowances should I claim on my W-4, and do I need to do any Extra Withholding? Also, how should my wife fill out her W-4 at her company, same as me?

[SwapnaM]

It's frustrating to face penalties every year! The good news is that with a bit of adjustment on the W4, you can avoid owing the IRS money and those penalties.

"Allowances" are no longer used on the current W-4 form (redesigned in 2020). The new W-4 uses direct inputs related to your filing status, dependents, and other income/adjustments.

Use the IRS Tax Withholding Estimator: www.irs.gov/W4App

This is the most accurate and reliable tool available. It's designed specifically for situations like yours where both spouses work and have dependents. The estimator will walk you through questions about both of your incomes, your filing status, your child, and any other relevant financial details. It will then provide you with specific instructions on how each of you should fill out a new Form W-4. TurboTax also has a W4 calculator.

Step 1: Personal Information

• You both select "Married Filing Jointly."

Step 2: Multiple Jobs or Spouse Works

• If you or your spouse have another job, complete Steps 3 through 4(b) on only one Form W-4. 
• Your withholding will be most accurate if you do this on the Form W-4 for the highest paying job.

Step 3: Claim Dependents

• Since you have a 1-year-old, you likely qualify for the Child Tax Credit.
• If your combined income is below certain thresholds ($400,000 for Married Filing Jointly for the full credit), you will enter $2,000 for your qualifying child here.
• Important: Only one spouse should claim the child tax credit amount on their W-4 (usually the higher-income earner, but the estimator will clarify). If both claim it, too little will be withheld.

Step 4: Other Adjustments Complete this optional step to make other adjustments.

• Other income (not from jobs).
• Deductions (other than the standard deduction).
• Any additional amounts you want to withhold from each check

For more info about w4, please look into https://turbotax.intuit.com/tax-tips/irs-tax-forms/how-to-estimate-federal-withholding/L99CO0yTK 

@clo5104 Thanks for the question!!

[AmitaR]

If you are W-2 wage earner and you have Balance Due every year, definitely, you need to update your Form W-4.  Looks like you are not having enough withholdings.  Also if you have additional income besides W-2, you need to withhold additional taxes to account for that.  2024 W-4 Calculator below will get you very close to 2025.  An easier way to update W-4 is divide your balance due by number of paychecks remaining and enter that amount on line 4c as Extra Withholding.  For example, if you had balance due $3,000 and you have 15 remaining paychecks in 2025, then enter $200 as additional withholding on your Form W-4. Hope it helps.

Tax withholding: How to get it right

W-4 Calculator 2024

[AmitaR]

W-4 Calculator 2024

[evelynm]

To adjust your withholdings TurboTax has an amazing tax caster to generate an updated W-4:   W-4 tax calculator 

As you both work be sure that you fill out W-4 forms for each of you.  You can also consider increasing your withholding from the higher paying job to account for your dual incomes.

When completing your W-4 forms, ensure you account for all sources of income.    The US uses a progressive tax system where your tax rate increases as your income rises which can push your combined total income into a higher tax bracket which is likely why you have been penalized in the past for under withholding.