Author Topic: Help! Owed taxes this year as a new married couple  (Read 1090 times)

octopus28

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Help! Owed taxes this year as a new married couple
« on: May 16, 2021, 11:05:56 AM »
Hi all,
Feeling pretty lost with combining finances and filing this year for the first time as a married couple. We ended up owing about 2,500 to the feds- totally unexpected, and I would like to adjust moving forward so this does not happen again. We are in Virginia and both filing as married but without taking extra withholdings. I started working in May of 2020 and did not work or have income before that in 2020. I have continued to work and together this year we will probably bring in $180,000. We have one dependent.

Here is what the breakdown for 2020 was:

Total income: 142,630
Fed dedications: 25,107
Taxable income: 117,523
Federal credits: 2,000
Fed taxes we owe: 15,435
Fed taxes we paid: 12,918
Fed balance due: 2,517
VA refund: 300

Looks like we are supposed to be paying taxes quarterly this year- I've never had to do that either. Is that mandatory?
How can we adjust our filing to make it so we do not owe for this year?

Thank you, thank you, thank you!!!

terran

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Re: Help! Owed taxes this year as a new married couple
« Reply #1 on: May 16, 2021, 12:30:34 PM »
You can pay taxes quarterly estimated if you want, but I would just make sure you have enough withheld from your paychecks instead.

It doesn't make sure you won't owe, but you can make sure you don't owe a penalty by meeting one of the safe harbors. My preferred safe harbor is making sure I pay 100% of the tax shown on the return for the prior year. This becomes 110% if your AGI for the the current year is over $150k, which it sounds like it might be. I like this safe harbor since it doesn't require any guessing about current year income (other than the 100%/110% question) as it's based on the prior year.

You can try using the withholding calculator to see how it says you should each fill out your w4, but personally I'd start by just looking at both of your latest pay stubs. Add whats already been withheld plus what was withheld last month multiplied by the remaining pay periods this year. Subtract this from line 24 of your 2020 form 1040 and divide that amount by the remaining pay periods and you can just enter that as an "extra withholding" amount on your w4 while leaving everything else the same. You can either split this between each of you or one of you can do all of the extra withholding. It doesn't matter as far as the IRS is concerned. My wife pays all of our taxes, for example, since I'm self employed.

If either of you has variable income redo this calculations later in the year while you still have time to add some more extra withholding without reducing your paycheck too far before the end of the year. While quarterly estimated taxes need to be paid in four equal installments (or in when the income is earned for variable income) to avoid a penalty, withholding can be paid at any time during the year and still be considered to have been paid on time.

MDM

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Re: Help! Owed taxes this year as a new married couple
« Reply #2 on: May 16, 2021, 12:38:50 PM »
At a quick glance, the 2020 version of the case study spreadsheet (CSS) matches your federal tax result exactly, so there is good reason to believe the 2021 version will be as good as your income estimate.  Don't know how close the 2020 VA estimate was (the OP had only the refund amount).

There is also a W-4 withholding estimator in the CSS.  If you try that and it matches what you get from terran's suggestions you should be all set to proceed.

Adjusting withholding is simpler and more favorable to you than paying estimated taxes.

roomtempmayo

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Re: Help! Owed taxes this year as a new married couple
« Reply #3 on: May 21, 2021, 02:03:41 PM »
Our experience with MFJ and no dependents taking the standard deduction in the 150-190k income range is that the standard calculation is way off.

For 2019, I think we made about 168k and took zero withholdings.  We ended up owing about $3k, and we got penalized for under-withholding.  I think the penalty is a relatively new thing, as it used to be that as long as you squared up by April 15th you were good to go.

Anyway, I have no idea who created the standard model, but it's off.


How can we adjust our filing to make it so we do not owe for this year?


1) Gather your most recent paystubs.
2) Enter your info into the IRS withholding calculator: https://apps.irs.gov/app/tax-withholding-estimator
3) Follow the directions for adding extra withholding.  My experience is that the calculator is accurate, and it worked for us last year.

That's the practical way of dealing with it.  But I'm still frustrated about the fact that our tax obligation seems to be entirely off the IRS charts.

MDM

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Re: Help! Owed taxes this year as a new married couple
« Reply #4 on: May 21, 2021, 07:43:37 PM »
Our experience with MFJ and no dependents taking the standard deduction in the 150-190k income range is that the standard calculation is way off.

For 2019, I think we made about 168k and took zero withholdings.  We ended up owing about $3k, and we got penalized for under-withholding.
For 2021, filing MFJ with the sole income a single W-2 amount of $170K, a W-4 to that effect will cause (based on Percentage Method Tables for Automated Payroll Systems) withholding of $23,375.

Come filing time in 2022, that income will cause (based on the case study spreadsheet) a federal tax obligation of $23,375.

Of course, having income from multiple jobs, non-salary income, etc., will affect the tax liability without affecting the withholding if not entered on the W-4.  But maybe whatever was wrong in 2019 has been corrected on the new W-4.

MDM

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Re: Help! Owed taxes this year as a new married couple
« Reply #5 on: May 22, 2021, 02:25:34 AM »
The feds don't take enough out if you're married.  The forms they use don't work as well for married couples. 
Step 2c for https://www.irs.gov/pub/irs-pdf/fw4.pdf mentions (emphasis added) "If there are only two jobs total, you may check this box. Do the same on Form W-4 for the other job. This option is accurate for jobs with similar pay; otherwise, more tax than necessary may be withheld"

A quick check of the withholding for the $170K couple mentioned earlier supports the IRS wording.  If both make $85K, the total withholding is $23,375, exactly what it should be.  That holds true for splits up to $99K/$71K.  If the income split widens to $116K/$54K, there is all of $340 extra withholding.

In the extreme that only one of the couple had earnings, and the earner checked the 2c box and made $170K, there would be $8400 extra withholding.

But yes, the best thing to do is estimate your taxes for the year and adjust your withholding accordingly.  It is possible to get very accurate tax estimates if one can predict income accurately.  Of course, if one has no idea what income will be, no form will be able to guarantee accurate withholding. ;)

joe189man

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Re: Help! Owed taxes this year as a new married couple
« Reply #6 on: May 24, 2021, 11:54:02 AM »
I think i am way out of my league here but here is our experience, we had to set our deductions to zero and still ended up owing more federal taxes than we paid, we started paying extra fed taxes each paycheck and still owed, so now we are paying more from paychecks and we'll see how it comes out, i will review the above to see if we can get a handle on federal taxes, i think we owed ~$4,500 this year and some penalties for not paying enough

MDM

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Re: Help! Owed taxes this year as a new married couple
« Reply #7 on: May 24, 2021, 12:15:00 PM »
I think i am way out of my league here but here is our experience, we had to set our deductions to zero and still ended up owing more federal taxes than we paid, we started paying extra fed taxes each paycheck and still owed, so now we are paying more from paychecks and we'll see how it comes out, i will review the above to see if we can get a handle on federal taxes, i think we owed ~$4,500 this year and some penalties for not paying enough
Did you do your own (either by hand or using tax software) 2020 taxes?  If so, you might simply adjust the inputs (your expected 2021 income from various sources) and see what that gives you for a 2021 estimate.

There have been some tax law changes, there will be inflation adjustments on brackets, etc., so your specific circumstances will affect the estimate accuracy but it should be a decent start.

Sibley

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Re: Help! Owed taxes this year as a new married couple
« Reply #8 on: May 26, 2021, 03:50:43 PM »
I could be misremembering, but the single tables were higher withholdings than the MFJ tables. So try the calculations for single, might help. (It doesn't impact your tax return.)