Dependents and breaking even

[SAHM1]

Hello,

We are a married couple filing "married filing jointly" when we file taxes. My wife is a stay-at-home mom, so she does not earn any income at all. We have two children 11 and 9 years old. For dependents, should I be claiming 2 (for just the children) or 3 (for the children plus my wife)?

I plan to continue to support my wife financially as long as she would like so that she does not have to work. Per our 2023 tax return my total earnings were $149,000 (taxable income was $121,877) but, if she wanted to get a part time job, what would be the max she could earn per year and not put us in the situation where we would now owe taxes instead of receiving a refund? Is there mathematical calculation to figure that out (would like to be able to figure it out on our own once we can no longer claim the children as dependents)? 

Thank You

[rjs]

You can never claim your wife as a dependent. Filing jointly gives you all the benefits of having the additional person.

Whether you owe tax or get a refund is not based on a specific amount of income. It depends on how much tax is withheld from your pay, compared to your total tax for the year. The amount of tax that is withheld is determined by what you put on the W-4 form that you give to your employer. If you both work you can use the Tax Withholding Estimator on the IRS web site to figure out what you should each put on your W-4 forms. It will show you how to adjust your withholding to get the approximate refund amount that you want.

[Opus 17]

The best thing to do is use the calculator on the IRS web site or fill out all the worksheets and all the instructions on all 4 pages of the W-4.  

If you are planning on using the standard deduction and have no other unusual tax circumstances, you would enter $4,000 on step 3 and leave it as-is.  The W-4 by default assumes you are the only working spouse, and the tax tables will account for the larger standard deduction for MFJ.  If you plan to take itemized deductions, or have other unusual circumstances, you can follow all the instructions and worksheets to see if there is any further adjustment required. 

[SAHM1]

Thank you for your response. So since my wife does not work would it benefit us to put 2 dependents (for our two children) on the w-4?

sorry another dumb question, what is "Your total tax for the year" ? how is that calculated?

Thank you for your time

[rjs]

"So since my wife does not work would it benefit us to put 2 dependents (for our two children) on the w-4?"

It depends on what you mean by "benefit." Adding dependents on your W-4 will reduce the amount of tax that is withheld from your pay, so your take-home pay will increase. The reduced withholding will mean you get a smaller refund when you file your tax return. To see what the effect would be of changing the number of dependents you can use the Tax Withholding Estimator on the IRS web site or the TurboTax W-4 Calculator.

"what is 'Your total tax for the year' ?"

For the purpose of this discussion, your total tax for the year is the amount on Form 1040 line 24.

[SAHM1]

Thank you for response again RJS, You are so helpful. By benefit, I mean not having to pay at the end of the year. That is ultimately what I'm trying to avoid. Hence, me asking if my wife were to decide to get a job it would increase our income and I'm nervous what that will do as far as taxes and so to when the kids are over 17 and we can no longer claim them. I wish there were some kind of formula that can be used to figure all that out as our situation changes through life. You know like gross income divided by blah blah multiply by this and that etc haha!!!

Thanks again!

[SAHM1]

Thank you 

[xmasbaby0]

You are a bit confused about claiming your children.   You lose the child tax credit in the tax year that they turn 17, but you can still claim them as dependents until the tax year they turn 19 or even until they turn 24 if they are full-time students.  You would continue to get the $500 credit for other dependents instead of the child tax credit, and by claiming them as dependents you could also be eligible for education credits if they are in college.

CREDIT FOR OTHER DEPENDENTS

https://ttlc.intuit.com/questions/4499708-what-is-the-500-credit-for-other-dependents-family-tax-cre...

[SAHM1]

Thank you for clarifying, appreciate it:)

[Opus 17]

The W-4 is the "formula" for estimating your taxes.  The problem is that the tax "value" of a dependent changes based on their age, so to really be accurate, you should update your W-4 whenever you have life events that may change your taxes.  A child turning 17, so the credit is reduced in value, is one such event.  If your child goes to college and you can claim an education credit, that is a life event that reduces your tax so you could have less withholding.  Gifts to charity, buying a home, etc., are all life events that might change your taxes and so you have the ability to account for them in your withholding.

The only other way to do it would be to prepare a mock tax return on January 1 of the year, estimate your tax obligation, divide by 52 weeks or 12 months or however you are paid, and give that amount manually to your employer to be withheld.  And in reality, that's what the W-4 does (more or less), just with the majority of the calculations hidden from you and performed by the IRS or the employer's payroll software.  

[SAHM1]

Thank you!