Author Topic: Why do we always owe?  (Read 842 times)

merlin7676

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Why do we always owe?
« on: January 08, 2018, 10:00:18 AM »
Just a quick question regarding owing taxes.
We had to pay last year and again this year even more.

Husband and I together made less money this year and put more money into 401K yet we owe even more this year than last year.

Our w-2's are listed as married and we both have 0 exemptions so the max amount is taken out every check on both our checks. Does this mean we need to have additional money taken out for tax time?

We were thinking that we make too much combined that would push us into the next tax bracket but we filled out both ways...married, filed jointly and married, filed separately but the difference is only $10.
I made about $67K and husband made about $100K (rounding, don't have exact numbers in front of me).
His taxable income is about $92K and  I had $12,699 taken out for my 401K alone which would therefore lower my taxable to $54K...so I think that would put us at the very top of the 25%

Are we missing something?

omachi

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Re: Why do we always owe?
« Reply #1 on: January 08, 2018, 10:33:25 AM »
Just putting 0 exemptions in doesn't work. Form W-4, which you use to adjust your withholding, has a handy two earner worksheet on it that you're directed to use if you are a two income household making more than $50k. Follow the form exactly and you should be close.

A quick run through assuming standard deduction, no other income, and taxable numbers you give indicates 0 exemptions and $4040 withheld over the course of the year (e.g. $168 extra held per paycheck if you get paid twice a month) will keep you from owing large amounts.


merlin7676

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Re: Why do we always owe?
« Reply #2 on: January 08, 2018, 10:48:22 AM »
Thanks. Will do

omachi

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Re: Why do we always owe?
« Reply #3 on: January 08, 2018, 10:51:46 AM »
No problem. Also, the quick sanity check is if the extra withholding is close to your tax shortage. So if the changes add up to about what you owed, you're good to go. Of course, with new tax rates but no new forms, I'm not sure what is going to happen this coming year.

MDM

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Re: Why do we always owe?
« Reply #4 on: January 08, 2018, 01:45:02 PM »
Are we missing something?
Perhaps that this is a good thing.  Not a great thing, but still a good thing.

As long as you don't owe so much that the IRS adds a penalty, you were able to hold the amount due in a savings account and earn some interest.

If the IRS owes you money when you file, it means you gave the IRS an interest-free loan for that amount.

BigRed

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Re: Why do we always owe?
« Reply #5 on: January 09, 2018, 09:25:27 AM »
Another option is to just check single on the W-4.  If you make similar amounts then that ought to solve your withholding problem.

RedmondStash

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Re: Why do we always owe?
« Reply #6 on: January 16, 2018, 10:31:34 PM »
I always kinda like owing a little tax in April. It means I haven't given the government a free loan all year. Instead, they've given one to me -- as long as it's not so much that I incur a penalty.

fattest_foot

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Re: Why do we always owe?
« Reply #7 on: January 18, 2018, 10:21:25 AM »
It's pretty weird to me that 0 exemptions doesn't withhold even close to the right amount. It's only because of $47k in tax deferred income that we make it close. If not for that, we'd owe several thousand.

I'm not complaining, but it's bizarre that the IRS leaves that much money on the table.

MDM

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Re: Why do we always owe?
« Reply #8 on: January 18, 2018, 10:32:42 AM »
It's pretty weird to me that 0 exemptions doesn't withhold even close to the right amount. It's only because of $47k in tax deferred income that we make it close. If not for that, we'd owe several thousand.

I'm not complaining, but it's bizarre that the IRS leaves that much money on the table.
They may leave it on the table during the year, but if you have underpaid by a significant amount, when it comes time to file you will owe all that plus more in penalties.  See Publication 505 (2017), Tax Withholding and Estimated Tax | Internal Revenue Service for more.