Federal tax bill growing in last few years

[RoofD82]

Hi All,

Longtime TurboTax customer, and up until recently, I had been getting net positive refunds when filing taxes out of Massachusetts.  In the last couple of years though, I've had a tax bill, with this past year owing over $1K overall specifically from the Federal side (before any capital gains adds).  I've changed virtually nothing on the way I file.  I file as married jointly, and although I claim my son as a dependent on the taxes, I do not list him as a dependent on my W-4 to ensure there is more for tax withholding.  I tried using the W-4 Withholding calculator, but its a bit complicated.  LIterally the only thing that has changed is my salary via merit increases, so perhaps my wife and I collectively moved into a new tax bracket in the last couple of years?

I'm considering just adding over $1K in the extra withholding section (4c) of a revised W-4 for my paychecks, so i'm not hit with any surprises next year, but interested if anyone has any obvious checks I can look into as it pertains to withholding elections, and any best practices there to ensure keeping the federal tax bill lower.

[Vanessa A]

Without having exact numbers, it is hard to answer that question accurately. It is quite possible that your merit raises have pushed you into the next tax bracket. If just one of you have been pushed into the next bracket, only one of your employers would be withholding taxes at that rate.  But, when you combine your income, it could result in the other persons income being taxed at an entirely higher rate.

Did your son turn 17?  If so, you may have lost $1,500 of the Child Tax Credit and now are only receiving the $500 Other Dependent Credit. The IRS rules state that the child must be under the age of 17 in order to be a qualifying child for the Child Tax Credit.  When they turn 17, they are only eligible for the $500 Other Dependent Credit. 

One thing you can do is use the Tax Table to determine what your tax liability will be for next year. Be sure to consider any raises you may get this year. You can look at your current return and see what, if any credits you received and then deduct them from the tax liability on line 16.  Figure out if you will be eligible for them again next year.  If not, then disregard them in your calculations.

Then take the number you come up with and subtract your current withholdings.  Divide this number by the number of pay periods you have in the year and that will be the additional amount that one of you should have withheld from your pay each period. 

[RoofD82]

Hi Vanessa,

Thank you for your detailed answer.  My son is under 17, so it looks like that wasn't the reason for the higher tax bill, but more so the thinking on entering a higher tax bracket is the explanation.  Definitely complicated, but just curious how my native withholdings don't account for tax needs at the end of the year.  I ran the numbers in the tax table, subtracting general withholdings, but the number I came up with is significantly higher than my federal tax bill was this year, so I'm guessing I didn't do this correctly.  My end game is my employer takes the right amount to avoid any surprises, so my additional question would be, is it normal for additional withholding to be added as one grows in an organization?

[Critter-3 · Accepted solution]

First  change the filing status on the W-4 ... if you both work the lower wage earner should be claiming single/mfs  and if that is not enough have both of you mark the single box and leave the rest of that form blank.

In the past the W-4 form used to have the option to file married but withhold at the higher single rate  but the new form doesn't so you have to be smarter than the form and choose the single option yourself even if you file married joint on the tax return.

If each of you filing single doesn't cover other income you may have on the return where there is no withholding being taken like investments then you can adjust the W-4 further by adding in a static amount on line 4c to be taken per pay period in addition to the  usual amount from the charts.