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Looks like we are going to take a big hit on taxes once again. Ever since they adjusted the tax tables to make the recent tax cuts look bigger, I cannot seem to catch the taxes, they simply are not withholding enough.
Every year I make adjustments for more withholding and every year it is not enough. Last year we owed about $2500 after putting our state tax return toward our federal taxes, so I added an additional withholding of $250 per check ($6500 a year). This year, we are still behind. I have not figured it all out, but we may possibly owe around $10,000 (we got small increases last year that bumped us into a higher bracket). My wife just got a very large promotion. We are going to have to put it all toward more tax withholding and if there is anything left - paying off this year's tax liability. Her employer (a city) does not withhold anywhere near enough federal taxes. Due to the new tax tables, my employer also does not withhold enough, but it is at least close. With the added $6500 a year it is closer, but still a little short. My wife's employer is not even close (about 500% to little). I keep increasing my withholding to make up for it, but it looks like I need to add $1500 a month over an above what the tax tables tell my employer to withhold. She already claims married 1. We will have to change her status to single 0 and then still ask for additional withholding. We will also have to increase the additional withholding from my check. The added withholding will more than eat up my raise and her initial raise. The big boost from her major promotion is the only think that will allow us to pay this off before the end of the year.
2020 was even worse because my wife worked for the census part time to get some extra income. The federal government withheld only $250 for federal taxes even though they withheld about $1500 for state taxes. You would think at least the federal government would get their own withholding right.
In addition to increasing withholding, I substantially increased 401K withholding and HSA contributions which lowers our taxable income. I thought we would be looking at a hefty return this year.
Not faulting anyone, just blowing off steam. It is extremely frustrating. We got too much of our pay - the government was supposed to get more all along, so it is only my fault. That does not stop me from being really annoyed. We were finally doing so well financially and now we will have to take out a loan to pay taxes.
Still having been paid too much money last year is not something to complain about. Well, yes it is when it comes as a nasty surprise. The new tax tables are absurd and annoying. They are about 50% short of what needs to be withheld. To be a little off is understandable, but this is ridiculous (even after discounting the fact that her employer is simply doing it wrong).
It does not make sense that your employer "is not withholding enough due to new tax tables". Is this employer someone that does their payroll by hand??? Every payroll software company updates their tax tables in January - payroll tax compliance is required by law. If they are doing their payroll by hand, they still must comply. Perhaps you should steer them to these websites. I have worked with payroll taxes and payroll software for most of my career. Your employer cannot be excused from the responsibility of withholding the correct amounts.
How could you owe $10,000 more if you “only made a small amount more”. The new tax bracket is just a marginal amount on that increase. If she made $10,000 more income that might be $2,400 more in tax if your top bracket is 24%.
You also said you increased tax deferred contributions. With these 2 facts and the one above, there has to be something substantial happening to literally owe $10,000 more.
Do you owe penalty and interest or did you at least meet the safeharbors for cy paid in or py amount paid in.
I wouldn’t rely on “them” withholding the right amounts. Figure out an estimate and make sure you’re putting enough in. “They” can’t withhold the right amount because they don’t know your full picture of income or other tax deductions/credits.
Just do the calculation. Ignore the bill **** employer tables and 1’s and 0. Estimate what your taxable income will be after your various deferrals and the standard deduction. Run that number through the various brackets and come up with your tax. Then divide that by your payrolls. You can do the same for city and state. Either way, make sure you at least hit the safeharbors.
And I’m not trying to be an ass, but from the way you don’t seem to understand how it works, it’s possible you’re doing something wrong on the return itself anyways. Hire somebody to do it. You’re getting whipsawed and aren’t predicting it properly anyways, and it sounds like it causes you issues in the past and is only resolved this year because of your wife’s raise…but her raise also might cause you problems next year, because you’re not forecasting properly.
Last edited by Thatsright19; 03-12-2022 at 07:11 AM..
Similarly, we started owing thousands a few years ago. We each claim 0 and have an extra $600 (combined) withheld per month. Looks like we will still owe ~3k.
We have been experiencing the same problem. We both maxed out our 401k contributions and continue to increase the supplemental contributions for federal and state taxes. Since I am semi-retired, with all the deductions, I often only receive enough left in my check for a burger and beer dinner for two at a local restaurant. We still end up anteing up thousands at tax time. Last year I had our accountant do a withholding projection and we further adjusted but my work schedule varies quite a bit and I don't know how much I will be working beyond a week or so in advance. It could be 5 hours or 40 depending on the project. This makes the supplemental payments very difficult to predict.
Ironically, in my case, it just might not make any sense for me to continue working as my income kicks us in and out of higher tax brackets, deductions, and types of retirement contributions.
I am in favor of a flat tax with limited verifiable deductions applied to all net income (wage, SS, pension, capital gains, interest, etc.) above a certain threshold. It would be automatically withheld and there would be no filing requirements for the average wage earner. This would simplify the process, increase collections, reduce fraud, and significantly reduce the required number of IRS and state tax officials. It would also free them up to work with businesses and allow them to evaluate more complex returns.
Then don't worry about it. I never understood the obsession with getting a tax refund. If I get a tax refund, I consider it a failing on my part.
I would love nothing more than to have $0 withheld from my paycheck and write the IRS a check on April 15th the following year. Barring a substantial change in income throughout the year, I know what my tax liability is to the nearest $50, and that is what is withheld per my W4. If work only withheld half of my tax liability, that would be great - the difference goes into a savings account, earns interest, and when I pay the remainder I do a giant credit card churn and pick up $1,000 worth of points.
I'm going to second Lincolnian's idea of a flat tax so long as the rate is not to exceed 10% at any level of income.
Similarly, we started owing thousands a few years ago. We each claim 0 and have an extra $600 (combined) withheld per month. Looks like we will still owe ~3k.
That's a good thing, right? Never be over-withheld.
How could you owe $10,000 more if you “only made a small amount more”. The new tax bracket is just a marginal amount on that increase. If she made $10,000 more income that might be $2,400 more in tax if your top bracket is 24%.
You also said you increased tax deferred contributions. With these 2 facts and the one above, there has to be something substantial happening to literally owe $10,000 more.
Do you owe penalty and interest or did you at least meet the safeharbors for cy paid in or py amount paid in.
I wouldn’t rely on “them” withholding the right amounts. Figure out an estimate and make sure you’re putting enough in. “They” can’t withhold the right amount because they don’t know your full picture of income or other tax deductions/credits.
Just do the calculation. Ignore the bill **** employer tables and 1’s and 0. Estimate what your taxable income will be after your various deferrals and the standard deduction. Run that number through the various brackets and come up with your tax. Then divide that by your payrolls. You can do the same for city and state. Either way, make sure you at least hit the safeharbors.
And I’m not trying to be an ass, but from the way you don’t seem to understand how it works, it’s possible you’re doing something wrong on the return itself anyways. Hire somebody to do it. You’re getting whipsawed and aren’t predicting it properly anyways, and it sounds like it causes you issues in the past and is only resolved this year because of your wife’s raise…but her raise also might cause you problems next year, because you’re not forecasting properly.
That's a good thing, right? Never be over-withheld.
We'd like to be closer to even. We don't need a refund.
I'll add that I also put $570 per monthly pay into a 403b.
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