Married, no kids, filing jointly. The software I use and some online calculator’s agree that I owe – but I can’t pass the sanity check when I take into account how much we paid.
~$140k AGI split between my wife and I.
Both had w4 marked “Married” for 0 exemptions and $10 extra.
$20k paid in mortgage interest 2007.
She had $18k in 1099-MISC, but paid $3600 of estimated (overpaid).
We got it down to owing Federal only $2k, but the is the first time we owe, and we expected a healthy return…
So all I can think of is to withhold at “single rate while married”, anything to do to prevent owing again? Did I do something wrong or have we just hit a new tax bracket the our jobs don’t account for when withholding?
Thanks in advance.
You are in a 25% tax bracket, and there are S/E taxes on your wife’s 1099 (unless she made more than $97,500 on between that and her W2, then the S/E would be smaller…).
The incremental tax on that 1099 alone is over $6000…the estimated payments of only $3600 explain your shortfall.
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For one thing you are in the 25% tax bracket, so your wife underpaid her estimated taxes on the $18K. It should have been $4500. Actually if that was self-employed/contractor income she should have withheld more like $6K to pay for the self-employment tax.
Your best bet is the project your earnings for the rest of the year, run those numbers to estimate taxes, and adjust your extra withholdings on your W-4 for the rest of the year.
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Your wife’s estimated taxes on the 1099 income was WAY too low! You’re in a 25% tax bracket so the income tax alone on that was $4,500 Tack on the approx 14% Self-Employment tax and it’s quite clear why you were short at filing time. If you’d paid in the $7,000 or so that you should have, you’d be looking at a refund of around $1,400 or so.
Actually the goal should not be a large refund but a break-even. A “healthy” return from a financial perspective is actually PAYING as large a bill as possible without getting penalized for underpayment.
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The withholding tables don’t always work real well at high incomes, especially when the income is split between two people. And $3600 of estimated tx on $18K of 1099 income isn’t nearly enough, isn’t overpaying – your tax is probably close to 40% on that, between income tax and self-employment tax, and the $3600 estimated is only 20% or about half of what’s actually owed on it.
Changing to withholding at single rate probably won’t make enough difference to stop you from owing next year if everything else stays the same. Have more extra taken out, and if either of you has 1099 income this year, send in about 40% of it for estimated tax.
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Everyone here explained it quite well for you! The 3600 on that 18k was underpaid by a lot!
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