is it possible to owe over $4,000 on taxes?

[Rob Base 2.0]

So I think I might owe for the first time federal. Around $4,000.00. I have to double check because I don't understand how it can be so much. It's my first year "retired" from the military. When I retired I set my taxes to withhold at the higher "0" deductions amount on my retired pay.  At my new job, I did the same and so did my wife; so I don't understand, I never had a problem before with taxes.......My preliminary inputs into H&R Block are showing that I owe about $4,000.00.   

Can this be right?  Retired Pay is about $46K per year, I made $53K at job and wife made $32K

[milee]

No way to know without running the numbers, but to answer your question in the title - yeah, it's completely possible to owe over $4,000 on taxes.  

[phil5185]

With a n $78,000 income - married, filing jointly and using std deduction, your tax bill would be about $7600. The remaining amount that you owe is $7600 minus what you've already paid (withholding and estimated tax payments.)
So if you prepaid $3500, you'll owe another $4000. BTW, mine is fairly close to that - so it is definitely possible. Oddly, most US tax payers with a $7600 tax bill prepay about $10,600 and then wait for $3000 of it to be refunded to them at year end, don't know why, they just do.

[Rob Base 2.0]

but we just have normal jobs and my military retirement no crazy deductions or other income.

I thought even if u maxed withholding amount at ur job, that it was still hard to "owe" on taxes (esp $4,000.00)

[Rob Base 2.0]

We made about $135K combined.

[Deleted]

Do you have investments outside of tax-advantaged accounts such as IRAs and 401(k)s?  Mutual fund capital gain distributions always kill me, tax-wise, in a good year.

Also- if the combination of retirement pay plus your pay at new job plus your wife's pay add up to significantly more than you made together last year, you may have been thrown into a higher tax bracket.

One thing to try, and I'm not a CPA so take this with a grain of salt; if you actually are collecting two incomes (retirement pay plus current job), test the scenario where you each file as Married Filing Separately.  That worked for me only once when I was married and the tax structure was very different back then, but it worked primarily because our state taxes reduced significantly when filing separately.  You'll need to find the optimal way to split deductions if you itemize; you can do anything you want except that you can't have one person take the standard deduction and the other itemize; you both have to have enough deductions to itemize.  In my/our case, my husband and I made almost equal incomes but the state "stacked" them so that one income was taxed completely at the highest rate.  We couldn't file separately for State unless we did so for Federal.

[pooks]

Definitely possible.  When withholdings are being calculated they are all looking at the income as if that is the sole source of income, especially if you were claiming married for each.  So not much withheld if the only income is 32K, 46K, or 53K, but than you get to the end of the year and you have 131K in income minus deductions.  

[swamp]

Yes. One year I owed $8000

[giramomma]

Could be right.
We had one year where we had an extra 40K of income on paper. Our income was just high enough to phase us out of deducting traditional iras

With three kids, and taking the standard deduction rather than itemizing , having 0 on all our withholdings, and claiming childcare, we still had 4K more in taxes than in a normal year.

[Rob Base 2.0]

Nothing significant in investments outside of tax advantaged accounts

[tskeeter]

Feb 11, 2018 18:45:34 GMT -5 Rob Base 2.0 said:

So I think I might owe for the first time federal. Around $4,000.00. I have to double check because I don't understand how it can be so much. It's my first year "retired" from the military. When I retired I set my taxes to withhold at the higher "0" deductions amount on my retired pay.  At my new job, I did the same and so did my wife; so I don't understand, I never had a problem before with taxes.......My preliminary inputs into H&R Block are showing that I owe about $4,000.00.   

Can this be right?  Retired Pay is about $46K per year, I made $53K at job and wife made $32K

Are you having income taxes withheld from your pension?  If not, that might be why you owe so much despite choosing O exemptions on your W-4 for your current job.

[Rob Base 2.0]

Feb 11, 2018 20:08:10 GMT -5 tskeeter said:

Feb 11, 2018 18:45:34 GMT -5 Rob Base 2.0 said:

So I think I might owe for the first time federal. Around $4,000.00. I have to double check because I don't understand how it can be so much. It's my first year "retired" from the military. When I retired I set my taxes to withhold at the higher "0" deductions amount on my retired pay.  At my new job, I did the same and so did my wife; so I don't understand, I never had a problem before with taxes.......My preliminary inputs into H&R Block are showing that I owe about $4,000.00.   

Can this be right?  Retired Pay is about $46K per year, I made $53K at job and wife made $32K

Are you having income taxes withheld from your pension?  If not, that might be why you owe so much despite choosing O exemptions on your W-4 for your current job.

Income taxes are being withheld from pension (state taxes too).  But now that I am looking at them they seem a bit low.  

[TheOtherMe]

It's possible.  I know when I worked a second job, I had to have an additional amount withheld, not just single and zero.  

Is your withholding all at married and zero?  The withholding tables do not know about your other income.  You have to figure out what needs to be withheld on your combined sources of income and adjust withholding accordingly.

I would also let it sit a couple of days and run it again.  There may be an input error that you can't see now because you are understandably frustrated.  

[tallguy]

I'd bet that each of the three sources of income are being withheld at their own bracket rate.  Most of the withholding is being done as though you were in the 15% bracket (and had 0 and 10% brackets incorporated within.)  When the income is combined at the end, much of it is in the 25% bracket.  There is then a large additional tax due above that which was withheld for.  

You may need to request an additional amount withheld from one source, but as long as you are safe-harbored from last year's tax liability there should be no penalty.

[Rob Base 2.0]

Feb 11, 2018 20:34:14 GMT -5 tallguy said:

I'd bet that each of the three sources of income are being withheld at their own bracket rate.  Most of the withholding is being done as though you were in the 15% bracket (and had 0 and 10% brackets incorporated within.)  When the income is combined at the end, much of it is in the 25% bracket.  There is then a large additional tax due above that which was withheld for.  

You may need to request an additional amount withheld from one source, but as long as you are safe-harbored from last year's tax liability there should be no penalty.

The H&R Block program showed a refund of $2,400 up until I put in my military pension.....can the taxes really be off that much?

What does safe-harbored mean? penalty?

[tallguy]

Feb 11, 2018 20:48:19 GMT -5 Rob Base 2.0 said:

Feb 11, 2018 20:34:14 GMT -5 tallguy said:

I'd bet that each of the three sources of income are being withheld at their own bracket rate.  Most of the withholding is being done as though you were in the 15% bracket (and had 0 and 10% brackets incorporated within.)  When the income is combined at the end, much of it is in the 25% bracket.  There is then a large additional tax due above that which was withheld for.  

You may need to request an additional amount withheld from one source, but as long as you are safe-harbored from last year's tax liability there should be no penalty.

The H&R Block program showed a refund of $2,400 up until I put in my military pension.....can the taxes really be off that much?

What does safe-harbored mean? penalty?

You may be subject to a penalty for underwithholding of tax.  If what you had withheld was at least equal to your tax liability from the previous year, you are in a "safe-harbor" area and there is no penalty assessed.  And yes, it can be off that much.  As I said, the military pay is mostly in the 25% bracket when added to your other income.  It was certainly not withheld at that rate.  How much was withheld from your pension?  

[Deleted]

Multiple income streams will kill you every time because they all assume that is your ONLY income.  I learned that when working multiple low-paying jobs when I was in college.  The tax bill I got ($600 in the early 90's when I was making about $4/hour) about gave me a heart attack.  One good thing came of it was I learned about deductible IRAs because of that!

[Deleted]

Feb 12, 2018 8:39:59 GMT -5 minnesotapaintlady said:

Multiple income streams will kill you every time because they [withholding tables] all assume that is your ONLY income. 

This.  When the Ex and I married, I decided to use the CPA he'd been using for years to do taxes.  I told him we'd married that year, provided everything to him as soon as I got it (probably MUCH better organized than the Ex ever did- he was terrible about finances), and on friggin' April 14 he calls and says he needs two big checks to the state- one for taxes owed because so much of our joint income was taxed at the highest marginal rate, and another as an Estimated tax installment for the current year.  No prior warning.  I dumped him after that.

OP- you'll probably need to start making Estimated tax installments using 1040-ES.  It sucks, but that's how you can avoid big bills if you're already withholding for zero exemptions.

[hoops902]

Feb 11, 2018 20:48:19 GMT -5 Rob Base 2.0 said:

Feb 11, 2018 20:34:14 GMT -5 tallguy said:

I'd bet that each of the three sources of income are being withheld at their own bracket rate.  Most of the withholding is being done as though you were in the 15% bracket (and had 0 and 10% brackets incorporated within.)  When the income is combined at the end, much of it is in the 25% bracket.  There is then a large additional tax due above that which was withheld for.  

You may need to request an additional amount withheld from one source, but as long as you are safe-harbored from last year's tax liability there should be no penalty.

The H&R Block program showed a refund of $2,400 up until I put in my military pension.....can the taxes really be off that much?

What does safe-harbored mean? penalty?

Yes, it can be off that much.  It's not about the pension specifically, it's about having 2 significant sources of income. When you add in the 2nd source, the pension withheld as if it were your only source of income (so looking at tax brackets, it assumed the first X dollars you made would end up taxed at a lower bracket, then gradually step up and step up and step up). What really happened is that you'd already used up all your "lower bracket" money from your regular job...so your pension withheld as if some of the money would be taxed at a low bracket...but you owe the money on the actual higher bracket.

Super simple example: Let's say you made $50k & $50k (we'll ignore your wife's earnings for the sake of illustration). Let's say tax codes say you owe $0 on the first 25K, 10% on the 2nd 25k, 20% on the next 25k, and 30% on the next 25k (for a total of 100k). Your pension withheld 0 on the first 25k and 2500 on the 2nd 25k.  Your regular job did the same, for a total withholding of 2500+2500=5k...so they did it exactly right and you'd owe $0 if either was your only revenue source.  Each acted as if it was your only source of revenue.  What you really owe though when you combine it all is 0+2500+5000+7500=15k minus the 5k withheld, so you owe $10k. 

[phil5185]

What does safe-harbored mean? penalty?

Safe-harbor protects you from the penalty. If your 'prepay' (witholdings and 1040ESs) is bigger than your previous year's tax bill, there is no under-witholding penalty.


But you may be over-thinking this issue. Eg, say that your total tax bill on the $135k is $22,000. If you had $18k withheld, then you owe $4000. Does it matter to you whether you pay the $22,000 during the year or on April 15?

If you decide to send in some 1040ES money next year, say an extra $4000, you'll owe close to zero in April 2019. Or, if you leave it alone, you will owe $4000 again - but it's a small matter, the penalty will be about $50. And remember, you had the use of the $4000 for an extra 6 months. Ie, that's $4000 that you won't be paying 12% to borrow from a credit card.

[hoops902]

Feb 12, 2018 10:50:27 GMT -5 phil5185 said:

What does safe-harbored mean? penalty?

Safe-harbor protects you from the penalty. If your 'prepay' (witholdings and 1040ESs) is bigger than your previous year's tax bill, there is no under-witholding penalty.


But you may be over-thinking this issue. Eg, say that your total tax bill on the $135k is $22,000. If you had $18k withheld, then you owe $4000. Does it matter to you whether you pay the $22,000 during the year or on April 15?

If you decide to send in some 1040ES money next year, say an extra $4000, you'll owe close to zero in April 2019. Or, if you leave it alone, you will owe $4000 again - but it's a small matter, the penalty will be about $50. And remember, you had the use of the $4000 for an extra 6 months. Ie, that's $4000 that you won't be paying 12% to borrow from a credit card.

It all depends what you'd do with that extra 4000 trickling in if you don't prepay.  Will you spend it, let it sit in a savings/checking account?  If so, prepay it.  Will you invest it and put it to work for you?  If so, pay the bill when tax time comes.

[Deleted]

Feb 12, 2018 10:50:27 GMT -5 phil5185 said:

What does safe-harbored mean? penalty?

Safe-harbor protects you from the penalty. If your 'prepay' (witholdings and 1040ESs) is bigger than your previous year's tax bill, there is no under-witholding penalty.


But you may be over-thinking this issue. Eg, say that your total tax bill on the $135k is $22,000. If you had $18k withheld, then you owe $4000. Does it matter to you whether you pay the $22,000 during the year or on April 15?

If you decide to send in some 1040ES money next year, say an extra $4000, you'll owe close to zero in April 2019. Or, if you leave it alone, you will owe $4000 again - but it's a small matter, the penalty will be about $50. And remember, you had the use of the $4000 for an extra 6 months. Ie, that's $4000 that you won't be paying 12% to borrow from a credit card.

You assume that he needs to borrow $4000 from a credit card. 

I know you are good at making $$$, Phil, but he's not going to make enough off $4000 in six months to make it worth playing games with the IRS.  Conceivably, the $4000 could go down in value if he puts it in the market.  I'd just make the estimated payments, but actually I always did extra withholding when I worked two jobs.  Rob Base 2.0 , you can do that instead of estimated taxes if you prefer.  

[phil5185]

I know you are good at making $$$, Phil, but he's not going to make enough off $4000 in six months to make it worth playing games with the IRS.

Yeah, you're right. Here's the part that really gets me - the average tax refund is now $3000/year. We (the US tax payers) send in 131 million federal tax returns each year. That means that we, as a population, over-pay our taxes by $400,000,000,000. (That's .4 Trillion). And then each Spring the IRS sends us $.4 trillion in refunded over-payments.
I guess it just irritates me that we (the tax payers) are dumb enough to do that.

[tallguy]

Why would that irritate you?  If the government can make more money off of the average person it means they need to make less off of you, right?  

[hoops902]

Feb 12, 2018 11:40:07 GMT -5 tallguy said:

Why would that irritate you?  If the government can make more money off of the average person it means they need to make less off of you, right?  

That's really only true if the government ran a zero-sum game where spending equaled revenue. As it stands...all it means is they don't increase the national debt by quite as much...it's not saving any of us money individually...it just means our government overall owes slightly less than it otherwise would.

[The Walk of the Penguin Mich]

Feb 12, 2018 11:40:07 GMT -5 tallguy said:

Why would that irritate you?  If the government can make more money off of the average person it means they need to make less off of you, right?  

I wondered this too.  Why does it matter so much to you?  It has absolutely no impact upon your life.

[tallguy]

Feb 12, 2018 11:56:52 GMT -5 hoops902 said:

Feb 12, 2018 11:40:07 GMT -5 tallguy said:

Why would that irritate you?  If the government can make more money off of the average person it means they need to make less off of you, right?  

That's really only true if the government ran a zero-sum game where spending equaled revenue. As it stands...all it means is they don't increase the national debt by quite as much...it's not saving any of us money individually...it just means our government overall owes slightly less than it otherwise would.

Which saves us all, in a way.  But here's the thing:

  It was a joke.  That's what the little smiley guy is for. 

[gambler]

yes,yes it is. As a good YM i pay the minimum out of my check ( use the extra to invest). every year i send them a check for at least twice your amount. benefit i use their money interest free

[Deleted]

Feb 12, 2018 13:49:41 GMT -5 gambler said:

yes,yes it is. As a good YM i pay the minimum out of my check ( use the extra to invest). every year i send them a check for at least twice your amount. benefit i use their money interest free

That depends.  If you are paying a penalty every year, you are paying "interest" even if it isn't labeled that way.

[kindthatjingles]

I do,worked a second job put me in a higher tax bracket and have to pay all my Obama Care back.

Hope they take payments