Author Topic: When to update W-4 (Post Baby and Wife Leaving Job)  (Read 2020 times)

coynemoney

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When to update W-4 (Post Baby and Wife Leaving Job)
« on: November 20, 2019, 07:32:07 AM »
Hi I'm guessing this is not the first time this topic has been brought up, but I didn't have any luck searching for this particular situation (I'm in the US btw).

Basically, I'm wondering when I should I update my W-4. We had our first baby in early November. My wife is currently on maternity leave and has a large amount of paid time off to burn through before she eventually will be leaving her job (some time in March I believe). At which point I will be the sole breadwinner for the foreseeable future. Her income was(is at the moment) about 75% of mine. Total income at the moment is around 200k and we file jointly.

So, should I update asap or wait until she is fully no longer working. It just seems a little silly to bother updating everything for just a couple months where worst case I would be over paying and eventually getting it back in April. I've tried running the calculator on the irs website but I wasn't really getting the clarity I was expecting on exactly how to handle this.

Phenix

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Re: When to update W-4 (Post Baby and Wife Leaving Job)
« Reply #1 on: November 20, 2019, 08:43:41 AM »
Case Study Spreadsheet (CSS) updates
Save a copy of this spreadsheet and fill in the blanks.  It is a spectacular tool for analyzing your tax situation (among other things).
The sheet gets regularly updated so a 2020 spreadsheet should be out in the near future.  Highly recommend taking the time to fill it in.

NorCal

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Re: When to update W-4 (Post Baby and Wife Leaving Job)
« Reply #2 on: November 20, 2019, 09:33:15 AM »
With a new baby in the house, I'd wait until the 1st of the year.  You have bigger priorities (sleep) right now.  Particularly since it's only for a few months, and the variance to withholding will be pretty small.

File it in January based on your expectations for full year 2020.


seattlecyclone

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Re: When to update W-4 (Post Baby and Wife Leaving Job)
« Reply #3 on: November 20, 2019, 12:23:04 PM »
You might as well bump up your allowances by a couple right away. No matter what you do you're likely going to have too much withheld this year due to the $2,000 child tax credit that your previous W-4 settings weren't anticipating, so reducing your withholding by a bit right away isn't very risky. If you really want to do some math, you might be able to get away with dramatically increasing your allowances through the end of the year and then resetting them to a more reasonable level in January, but this seems like a lot of work just to avoid loading the IRS a bit of money until you file your 2019 taxes in a few months.

At some point you can use your favorite tax calculator to estimate your total tax liability for 2020 given your wife's partial year of work income. Once she quits you can look at how much you have each had withheld for the year, figure out how much is still left in the year, and divide it by the number of remaining paychecks to see what your withholding should be for the rest of 2020. Compare that to how much was already being withheld to see what sort of adjustments need to be made. This can totally wait until March. Plenty of time to correct your course either way at that point.

coynemoney

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Re: When to update W-4 (Post Baby and Wife Leaving Job)
« Reply #4 on: November 20, 2019, 01:31:27 PM »
Thanks for the insight guys, I figured it wasn't super important to jump on it right away, I just didn't want to be missing something obvious and/or costly.

robartsd

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Re: When to update W-4 (Post Baby and Wife Leaving Job)
« Reply #5 on: November 20, 2019, 03:19:04 PM »
I'd just file right away based on your expected situation of being a sole breadwinner. If you file it now, you'll just have 1 month of your 2019 withholding changed. Meanwhile, your wife's pay and withholding will remain the same and your taxes will reflect a whole child in 2019 (doesn't matter if you had the child for 365 days or 1 day of the year). I highly doubt that this change will lead to under withholding of 2019 taxes causing you to owe money in April. Of course waiting until January isn't that bad either, you can file your taxes by mid-February and have your refund by early March.

Your withholding shouldn't be a problem in 2020 either. Although your withholding would be based on your single income, your wife's withholding will be based on the DINK situation you were in before. Even if you do end up under withholding for either of these years, it won't be to the extent that you would owe any penalties and since you're on this site I assume having a tax bill in April instead of over prepaying your taxes wouldn't be a problem.