How to handle unexpected income in W-4s

[myo1]

I have been reading some of threads today, and I saw one of the experts suggest that a good way to handle 2 earner households is for both people to mark "single" on the W-4s.  I'm wondering if this is a good solution for me and my spouse.  We both work, but one of us makes almost double what the other makes.  Also, we will have unexpected income this year because one of us is inheriting investments from a family member.  We really don't know what the dividends and/or capital gains/losses from these investments will be.  I would be interested to hear any suggestions about how to handle our W-4s.  

[PoojaT27]

Hi @myo1 ,

This is a good suggestion to use Single "0" on the W-4 for a two earner household to make sure there is enough withholding to cover the increased income as a result of two people earning.

There are many factors that impact the taxable income, hence the tax on your income.

• Filing status
• Number of dependents you plan to claim on your return
• Age of those dependents
• Information about pay from jobs
• Pension income
• Contributions to tax-advantaged accounts such as 401(k)s, HSAs, FSAs, etc
• Adjustments to income such as student loan interest paid
• Whether you take the standard deductions or itemized deductions
• Any tax credits you take advantage of
• Other sources of income and tax payments

The best way to gauge where you stand tax wise for a particular year is to use the W-4 calculator. Below are two W-4 calculator tools that will help you determine if you should change your withholding on your W-4 to account for the extra income from inheritance.

W-4 Calculator 2023 

Tax Withholding Estimator 

In case of doubt, it is always beneficial to have a little extra withholding. Additionally, you can have your employer withhold an additional amount (fixed dollar amount every paycheck) on top of your standard withholding to cover taxes for additional income.