Flummoxed

[Q_Beans]

I have tried to get my withholdings correct now for quite some time time.   Each year we wind up with a tax bill.   

I decided to try the Turbotax calculator.   I am not sure it helped very much, so apparently I am not going about this via the correct method.

The calculator info. includes this observation:

"If you make adjustments in the middle of the year, your results may vary."

Will you please explain what this means? 

I receive an annual pay increase that does not coincide with the calendar year, so I presume I am one of the people to whom the above quote applies.  

In addition, my wife just began a different job with slightly higher pay.  On top of that, she received a modest raise in pay at her former job not long before she took her new position.  

What is a person supposed to do to obtain an accurate calculation of withholdings in this tangled and convoluted situation? 

Do I need to hire a CPA? 

Here is what I tried. 

I have had the same job all year.  I have the higher annual income (about 2X) compared with my spouse. 

In the Turbotax calculator, I entered info. regarding what my income and withholdings were before my pay raise this year as "Job 1". 

Next I filled in income and withholdings information for the time period after my pay raise (through year's end) as "Job 2"  

I then entered my wife's information before she got a pay raise at her old job as her "Job 1". 

Then I filled out separate information for my wife after her pay raise at her old job as "Job 2". 

Last, I entered still separate information for her as to her new job ("Job 3"); she has not yet received a paycheck for her new job ("Job 3").  

The calculator says "we're golden", no adjustments to be made. 

That sounds flatly incorrect. 

I double-checked the numbers -- my entries are accurate as generally described above.  

In terms of general approach, should I be doing something differently here?  

I do not understand why this has to be so complicated, but thanks for your help. 

[NCperson]

@Q_Beans - how simple is your household situation? is it just the two of you and no children? 

have you tried this IRS tool? 

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

[rjs]

I suspect that entering parts of each job as separate jobs might be throwing the calculator off.

No calculator is going to be 100% accurate, but you might get better results with the IRS Tax Withholding Estimator that NCperson suggested. If you use the IRS Tax Withholding Estimator, follow the instructions it gives for what to enter, and don't pretend that one job is two jobs.

You do have to redo the estimate when something changes. Each time you or your wife gets a raise or a new job, redo the Tax Withholding Estimator after you get your first paycheck with the raise or new job.

[NCperson]

@Q_Beans and maybe when you get the result of the calculator, add a few bucks when submitting to your HR department... if you are paid every other week, an extra $10 is $260 over the course of the year of additional withholdings. 

[Q_Beans]

Thanks to all who responded with tips and feedback.  I will try the IRS calculator.   Our situation is straightforward -- no dependents, no child tax credits, etc.

I have one follow-up question.   Is this a true statement: 

If one spouse of a married couple, filing jointly, earns substantially less income, deductions should only be recorded on the W-4 for the higher wage earner.  

I read the W-4 instructions to say this, but I have a hard time believing it is an accurate interpretation.  Is my understanding correct, or incorrect?

Thanks again.

Q. 

[rjs]

I don't see that statement in the Form W-4 instructions. Where do you see that?

The IRS Tax Withholding Estimator will show you what each of you should put on the W-4 forms that you give to your employers.

[fanfare]

whatever amount you owe on Tax Day - add that ( amount / No. of pay periods) as additional withholding. to one of your W-4s, preferably one you know how you filled out the last time.

Note: IRS has recently redone the W-4 withholding calculations to better avoid this problem.

[smithalx53]

This is not exactly according to Doyle but my process (rule of thumb) usually works.  The first things to get out of the way:

Other than change in income, are there any other differences?  Dependents, 401K contributions, other withholdings i.e. childcare benefits for instance.

For the first half of your year take the fed withholding (box 2) and divide it by wages (box 1). 

1) If your income was less than $40K and you are single adjust or increase your withholding to 12%

If you are MFJ make sure the first $80K withholding was 12% (or more)
2) If your income was less than $90K and you are single adjust or increase your withholding to 12% for the income for the first $40K and for your income between $40K and $90K adjust or increase your withholding to 22%

If your income was less than $180K and you are MFJ make sure the first $80K withholding was 12% (or more) and for your income between $80K and $180K adjust or increase your withholding to 22%

3) For this step take the first two and add a third:

If your income was less than $170K and you are single, for your income between $84K and $170K adjust or increase your withholding 24%

If your income was less than $340K and you are MFJ, for your income between $170K and $340K adjust or increase your withholding 24%.

If you are earning more than $100K you should really at least consult with a tax professional to determine all/any of the exceptions to my 'rule' such as capital gains (usually maxes out at 15%), work related deductions, and of course, dependents.  Using box 1 as your calculation basis is reliable.  

[Critter-3]

I highly recommend this standard rule of thumb when you are married with no kids/deductions ... the OLD W-4 return had the option "married but withhold at the higher SINGLE rate"  but on the new W-4  you both need  to be smart enough to check the SINGLE/MFS  box for both of you (yes you can legally even if you file jointly on the return) .   Then after a couple of paychecks under the new withholding do a bit of a what if to see if that is going to be enough.  If not then add a flat amount to line 4C of the W-4 to make up the difference if needed.  Say you will be short $1000 of withholding and you are paid monthly and there are 4 months left to the year you would simply add $250 to line 4C on one of your W-4 forms or split that amount between both of your W-4 forms as desired.    

The online tools and W-4 worksheets can be confusing when you change jobs instead of having additional jobs.  So if you use those tools think of the old job and new job as one job for the year and not a second job you work at the same time as the first job. 

[saltwaterdave]

Critter-3 is exactly correct IMO.  Both incomes need to be entered and I personally recommend withholding at a slightly higher rate for that miserable write-them-a-check experience when filing your taxes.  That said, you can manage your withholding relative to what you are likely to owe -- usually it's as simple as tracking YTD withholding on your pay records issued by employers.  Toward the end of the year if it looks like you are going to either owe or get a higher than anticipated refund, adjust your withholding in October or so for earnings through the end of that year.  Then take what you learn into the next year and apply that withholding rate / amount / category and simply make adjustments for whatever increases in income you have proportionately / by percentages.  It may sound complicated but it really is easy / straightforward.  And unfortunately it is necessary in the situation we all live in today with America's tax system.  Tools may get you into the ballpark, but if you want it to work out well you essentially have to manage it yourself actively.  Anyone that tells you differently is....   Well, let's simply say they don't have to live with the outcome like you do!  Hope this is helpful.