Tax Filing Status

[KLR2022]

My husband and I file MFJ making 200k total and both claim 0 deductions.  I also pay 125/5 extra fed/state taxes each 2-week pay period.  We both contribute to pre-tax retirement accounts, mine is over 20k the last 2 years.  Yet we’ve paid over 13k in fed taxes the last 2 years. Why when we have 0 deductions?

[Loretta P]

I would start by reviewing the W-2s.  First divide the federal withholding in box 8 by the box 7 wages to get the percentage for each W-2.  I would compare that percentage to the effective tax rate for your return.  The effective tax rate can be found at the bottom of your 2-year comparison form if you printed your return with all forms and schedules.  If the withholding percentage is less that the effective tax rate and you want to reduce the amount you owe, you would need to adjust your withholding by submitting a new W-4 to your employer.

The IRS no longer uses the old method of choosing Married/Single/Head of Household with 0, 1, 2 etc. exemptions to determine the withholding amount.  You can use the free TurboTax W-4 Withholding Calculator 2021-2022 to determine the appropriate level of withholding and the Tax Calculator for Refund & Return Estimator 2022-2023 called TaxCaster to estimate your tax refund or how much you may owe to the IRS.  

[mfields2]

While it is a bit difficult to do a full assessment of your situation without seeing your tax returns and supporting documents (w-2's, etc.) - let me give you a few places to look for the answers as to why you owe:

1) Your W-4's are not filled out correctly.  Generally, in 2 income households, you have to use the "long" form W-4 worksheet for BOTH spouses to calibrate the withholdings properly.  If your incomes are relatively similar, you can always opt for the "single" rate of withholding, as generally that will cover your tax bill.  Your W-4 status does NOT have be the same status as your tax filing status; it is merely giving direction to your employer about how much money to take out of your paycheck to cover your tax bill at the end of the year.

2) Payroll error - it is possible that you have filled out your w-4's correctly, and the information in the system is just wrongly computing the proper withholding.  $200k of taxable income minus the standard deduction would yield about $30k of taxes for a married filing joint couple (a rate of 15%); take a look at your latest pay stub and see if your net wages (gross wages minus 401k and other pretax items) are having 15% of tax withheld for both of you.  If not, you need to make some changes.  The withholding tables changed after the Tax Cuts and Jobs  Act for 2018 and all years since then; if your spouse hasn't updated his W-4 since then it is possible his withholding is entirely too low.  Some payroll administrators (i.e. - human resources inside your company) did not handle the change in 2018 correctly.

3) Depending on the state you are in, you may want to explore Married Filing Separately.  States like Ohio have not removed a very high marriage tax penalty;  you might find this yields a much better result.