This often happens in two-income households because the standard withholding for "Married Filing Jointly" on each spouse's W-4 might not account for their combined income pushing them into a higher tax bracket overall..
This is how to adjust your W-4s to minimize the money you owe next year:
- Use the IRS Tax Withholding Estimator: This is the most effective tool. The IRS provides a free, online Tax Withholding Estimator (search "IRS Tax Withholding Estimator").
What you will need: Your most recent pay stubs for both you and your wife, your most recent tax return, and any information on other income (e.g., side gigs, investments).The estimator accounts for your combined income, deductions, and credits to recommend precise adjustments for both of your W-4's. It is designed to help you get your withholding as close to your actual tax liability as possible.
Understand "Married Filing Jointly" and Multiple Jobs: When both spouses work, you essentially have "multiple jobs" for withholding purposes, even if you each only have one employer. The W-4 form has specific instructions for this:
- Step 2 on Form W-4: This section is crucial for married couples where both work. You have three options:
- Option (a) - Most Accurate: Use the IRS Tax Withholding Estimator (as recommended above). This will give you the most precise guidance.
- Option (b) - Multiple Jobs Worksheet: Complete the "Multiple Jobs Worksheet" found on page 3 of Form W-4 instructions. You should do this on only one spouse's W-4 (typically the higher earner's).
- Option (c) - Check the box: If both you and your wife have jobs and the pay is roughly similar, you can check the box in Step 2(c) on both of your W-4s. This tells each employer to essentially cut the standard deduction and tax brackets in half for withholding purposes, increasing the amount withheld. This is simpler, but this might result in more or less withholding than truly accurate if both spouse's incomes are not similar.
- Consider Additional Withholding (Step 4c): If, even after using the estimator or adjusting Step 2, you still want to ensure you don't owe, you can add an extra dollar amount to be withheld from each paycheck.
Divide the $3,000 you typically owe by the number of remaining pay periods in the year. Add this amount to line 4(c) on one or both of your W-4s. For instance, if you get paid bi-weekly (26 pay periods), adding ~$115 per paycheck ($3000/26) could zero out your liability.
- Review and Adjust:
- Submit the updated W-4 forms to your respective employers' payroll departments.
- Monitor your paychecks to see the increased withholding.
- Review your withholding at least annually, or whenever there's a significant change in your income, deductions, or life circumstances (e.g., a raise, new job, or major deductible expenses).
By using the IRS estimator and properly utilizing Step 2 and potentially Step 4(c) on your W-4s, you can significantly reduce or eliminate the tax you owe at the end of the year.
Helpful Links:
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Terri Lynn
