IRS Income Tax Question - HELP
Q.My wife and I both claim "1" exemption on our respective W-4's. We file our return jointly. This year the % of salary which was withheld for IRS income taxes was to approx. 13%. We both are in the 50-60K salary range. Last year, with similar salaries and the same W-4 exemptions, the % was closer to 20-23% withheld. We work for separate companies. It was explained to me that the reduction was due to the "Tax Break" passed earlier in the year by Congress and the President. Last year, we received money back. This year we owe a sizable amount of money. Why? None of our deductions, salaries, or other income has had large changes. Our "other income" (interest, etc.) is low. Thanks for the help and advice
A.It sounds to me like you have fallen into one of the most common traps for married couples. When you prepare your W-4 at work and tell your employer you are Married, Claiming 1 exemption your employer withholds IRS tax at the rate of 10% on the first $12,000, then at $15% on the next $34,700, then at 27% on the next $66,150. Your spouse's employer does the exact same thing. Both employers disregard income earned by the spouses of employees. To simplify this example, let's consider you and your spouse separately for amoment when you file your joint return. Let's also assume that your taxable gross was $50,000 each, you both filed W-4s stating Married with ZERO exemptions. One fairly good solution to this is to have the higher income claim 2 exemptions and the lower none. The withholding is more accurate that way.
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