@Zoomboy
If you want to see exactly how withholding is calculated, download IRS publication 15-T.
The withholding system is more or less like a mini tax return estimator. For example, if we consider a single person with no dependents, their standard deduction is $13,850. That means that the first $266 per week, or the first $1154 per month will be tax-free. Income above that will be taxed at 10%, 12%, or 22%, depending on how large the income is. But if every paycheck was less than $266 per week, the person would never have income tax withheld. Double that for married filing jointly, so if a person is married filing jointly, and doesn’t make any other adjustments to their W-4, the first $532 per week will be tax-free.
For that reason, a married couple with more than one job, either because one person has two jobs or because each spouse works, needs to use all the worksheets on the W-4 to figure out how they should be withheld, and then they should apply that result to the W-4 at all of their jobs.
If your spouse is not being withheld correctly according to publication 15-T, you can present that information to the employer, and ask them to correct it. However, if your spouse has indicated married filing jointly with no adjustments, and you are talking about a $1000 biweekly paycheck, then it is entirely reasonable that no federal taxes will be withheld. That would be appropriate if she was the only spouse with a job. Because your income is variable, you may need to focus on paying enough estimated taxes based on your self-employment to cover the extra income tax that your family will owe as a result of the self-employment. Or, you may need to increase your spouse’s withholding even further. You could use the “add extra amount“ line, or you could change her W-4 to withhold as single.
