How did our withholdings get so screwed up?

[stillontheroad]

Okay, so this isn't really a big deal, but I'm curious to know why my wife and I ended up owing federal income tax this year for the first time. It's only $116, but I was expecting a small refund based on how we've set up our withholdings.

We each work only one job. At my job, my W4 says I'm married with two exemptions (which is correct). At my wife's job, her W4 still says she's single with one exemption - we never changed it when we got married. I earn slightly more than she does (box 1 of my W2 is about $1,800 greater than box 1 of hers). Based on this, I would expect that our withholding is pretty close to being correct - I assume that my wife's employer is withholding a little too much, but that it's in the ballpark of what should be withheld.

But here's the thing: based on other factors, I would expect we'd end up with a refund. We are eligible for the full student loan interest deduction of $2,500, which reduces our tax obligation by $375. Plus, my wife receives quarterly bonuses which are added to her regular biweekly check (meaning that the bonuses get withheld at a higher rate because it's as if her salary is much larger on those checks). I would conservatively estimate that the way the bonuses are structured means that at a minimum, $400 extra is withheld throughout the year.

The only other factor is that I won $1,200 at a casino last year and didn't have taxes withheld, so I know I owe $180 on that. But even considering that, I would expect our refund to be a few hundred dollars instead of owing $116. I'm fine with the final result, but confused by the fact that without the bonuses and SL deduction, we'd owe almost a thousand.

[Deleted]

The making work tax credit is only $400 (combined, I think) but the adjusted withholding tax tables were adjusted so that your withholding was reduced by more than that. that is probably your difference.

[servant_of_dog]

If you're claiming Married 2 on your W-4, and your wife is claiming Single 1 on hers, I think that together you're double-claiming her as far as withholding. Is this the first year you've had your withholding set up that way? That would maybe be part of what's different?

[servant_of_dog]

FWIW, if you hadn't had the $180 tax on the gambling win, your current withholding is really, really close to perfectly dialed in, as far as not owing/being owed.

eta: I think. I only do our household returns.

[stillontheroad]

The making work tax credit is only $400 (combined, I think) but the adjusted withholding tax tables were adjusted so that your withholding was reduced by more than that. that is probably your difference.

Archie, you're my hero. I probably would have caught this when I actually did our taxes (I just spent fifteen minutes or so on it at lunch to estimate what our refund or payment would be; we haven't actually filed yet), but I totally forgot about the Making Work Pay tax credit, which is $800 for married couples and which means that instead of owing $116, we'll be getting a refund of about $684. Which actually makes sense...if it wasn't for our SL interest deduction and my wife's bonuses being lumped in with her regular pay, it probably would have come out close to even.

You know what's really funny? I think I made the same mistake when I did my initial calculations last year, because I can distinctly remember coming to YM and having someone mention the Making Work Pay credit, then going back and filling it in

FWIW, if you hadn't had the $180 tax on the gambling win, your current withholding is really, really close to perfectly dialed in, as far as not owing/being owed.

Oh, I definitely wasn't too upset about the final result. I was just more surprised, because without the SL deduction and my wife's bonuses, it seemed like we would have owed a decent amount of money with our withholding the way it was. This makes more sense to me now.

[younggrasshopper]

Question- is box 2 correct and where can I find the correct info online? Thank you!

One of my husband's w2 states the following:
Box 1 10,080.
Box 2 290.80 federal income tax withheld
Box 4 624.96 ss tax
Box 6 146.16 medicare tax

Boxes 3 and 5 are the sames as box 1

No state tax

1 Exemption

[mwcpa]

road... you did a good job "guessing" to come so close....

a lot of things go into computing actual tax, not just how much income one makes but also allowable deductions, the AMT calculation, allowable credits, etc... ending up with only $116 being owed, in my book, is perfect (in my practice I consider anything under $1,000 owed being perfect given the numerous variables that one may not be able to predict with absolute certainty when they complete a w-4 in January). Unlike the sheep who think a 2-3-4,000 refund is a good thing you did some good planning and guesswork throughout the year... instead of getting "your money" this April 15 you had it last April 15....

and catching the miss that Archie pointed out still keeps you ending up reasonably

[mwcpa]

grasshopper...

withholding is based upon the frequency and amount of pay...

if your husband made 193 per week that would be one level of withholding, but if the entire 10,080 came in one check that would be another...

Find a 2010 copy of IRS publication 15, it may be found at IRS.gov (if you cannot find a 2010 version, 2011 should be close)

[henryclay]

Aaaahh, guys. . . . Isn't there more that makes this water so muddy?

Didn't the withholding tables change last April, so that withholding went down? And wasn't that because the Make Work Pay Credit was supposed to make up for it on the tax return? And didn't that cause the retired community to come up underpaid this year because the Make Work Pay Credit didn't apply to them?

And didn't the withholding tables go back up for 2011 because the Make Work Pay Credit WON'T be on the tax return next year when returns are filed for 2011?

What I have found helpful is to get ALL incomes on one sheet of work paper, , add them up , , try to determine the tax picture for the year, and come back to a pay period to see how much tax withholding is required for ALL incomes. I look for how much has already been withheld, and then claim whatever is necessary on the W4's so they will add up to that total withholding requirement. The worst thing I have encountered is that some employers are reluctant to make adjustments in their payroll. In that case estimated taxes may be required.

To me it's like determining how much each estimated tax payment needs to be.

The tables in Publication 15 are my reference for doing it. We didn't get one this year so I printed our the computation pages from the internet at: www.irs.gov/pub/irs-pdf/p15.pdf