Employer not withholding enough tax

[Zoomboy]

Last year we contacted my wife's employer to say that there was not enough tax being taken out.  We have no kids, and on a check of well over $1000, there would be 0-$5 taken out for Federal Tax.  We expressed how we couldn't believe that could be right, but the person we talked to said it was.  We finally threw up our hands and filled out a new W4 asking for a flat additional amount to be taken out.  Now after reviewing our tax situation we have found we want even more taken out.  Looking at the last three of her checks, only that flat amount plus some tiny amount ranging from 0 to $5 has been withheld.  The only significant amount being withheld is the "extra" amount we asked for.  Could we have filled out her W4 wrong, or does this indicate a problem with the company's calculations?

[Mike9241]

use the IRS w-4 calculator. 

https://www.irs.gov/individuals/tax-withholding-estimator 

[Zoomboy]

I've tried that estimator and found it to be awkward to use, and does not give good info since my income is from Self-Employment and I make quarterly payments (where I cover expected Federal Income Tax, Medicare and both sides of Social Security).  All I want to understand is how to fill out my wife's W4 so that an appropriate amount comes out each pay period.  It makes no sense to me that her employer would withhold 0-$5 on a paycheck of $1200, unless we specify an additional amount, and then often that additional amount is all that is withheld.  Shouldn't their software calculate out some percentage, like 8% or so, and just withhold that?

[Opus 17]

@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.

[Zoomboy]

Thank you.  At least I can understand how this is happening.  I still don't like that estimator.  Our taxes for 2023 came out almost exactly right with a net $6 refund, but that was because I recognized we were going to be short and I paid extra on my 4th quarter payments.  For this next year I just want to get it balanced out.  My wife has a few other W2s for smaller jobs with checks that vary greatly in amount but overall add significant income.  Far too little is taken out of those, and a flat amount taken per paycheck doesn't make sense.  I wish the W-4 allowed us to just specify a straight percentage.  I'll study all this and figure out what is the best course of action.