Tax withholding?

[ChadTower]

My wife just jumped into the workforce in the first non-part time way since we got married.  I'm trying to figure out how to adjust the withholdings and the lack of clear info out there is deafening.

I make probably 4-5 times what she makes at this point, so what little info I have found, says that I should still be claiming all of the exemptions.  Filling out the w-4 for her, though, resulted in her having no taxes taken out at all.  I guess we have two options - have her change hers so that taxes get taken out, or adjust mine so that more are taken out.  I'm guessing that her "single" tax rate still wouldn't enough because alone she would be in a much lower bracket than we are combined.  I'm nervous that if I have mine increased, though, that it will not be the right amount.

I know this is a pretty common situation... how do other folks around here handle this?

[Ed_McCarron]

Can't she just claim single/0?  They'll take out max taxes.

[ChadTower]

I thought that is what she actually did... but somehow they're taking nothing out.  Happened at her last (small part time) job too.  She must be making some mistake on the w-4.

[tommy]

Tell the IRS that the money you and your family make is not their business.     

[ChadTower]

Yeah, that'll work.

I think I might have it... worksheet 2 on page 2 of the w-4 (they almost never give you page 2 when filling stuff out) has a two earner / married jointly worksheet on it.  It shows you what to do but not really why or what it means so there's no way to know it's the right thing.

[CheffoJeffo]

Tell the IRS that the money you and your family make is not their business.     

If he's going to play cop, why not tax man ?

 

[Ed_McCarron]

If he's going to play cop, why not tax man ?

 

Great.  Another song stuck in my head...

[ChadTower]

I'll tax yrm0mz0rz.

[SirPeale]

I wouldn't worry about it.  You'll either just get back a lower refund at years end, or owe more.  Just put 25% of your wife's income away and don't touch it, and you'll be fine.

[Ed_McCarron]

I wouldn't worry about it.  You'll either just get back a lower refund at years end, or owe more.  Just put 25% of your wife's income away and don't touch it, and you'll be fine.

Chad:  When Peale is giving you financial advice, it just might be time to end it all.  I'm just saying.

[ChadTower]

Chad:  When Peale is giving you financial advice, it just might be time to end it all.  I'm just saying.

Why is that?

[shmokes]

I know full-well that this is the wrong answer, technically, but I really like it anyway.  I have always withheld the maximum amount, regardless.  It acts as a savings account.  I am fully aware that the big difference is that a savings account earns interest and tax withholdings do not, but that's only relevant if the alternative to my withholding was that I would put the money in a savings account.  I wouldn't.  It would just disappear to every-day expenses.  My paycheck would be slightly bigger every two weeks is all, and my lifestyle would most likely just be slightly better.  What are we talking, $75 per paycheck?  That's not going to make a huge difference in your day-to-day lifestyle, but when you get a $2000 tax return, you suddenly have a REALLY REALLY useful lump sum of money.  Are you going to put that extra $75 per paycheck toward your credit cards, or are you going to keep paying minimums and go out to dinner a couple more times per month?  Who knows?  But when you get that $2000, you can plunk that right down on a credit card and then cut the sonofabitch up permanently.  Or make it a vacation fund. 

Of course it's better to put the extra money into a savings account if you have the discipline, but the big question is, "Are you filling up that savings account right now?"  If the answer is no, then what do you have to lose by having the IRS provide the necessary discipline?  A little interest, of course, but really, if you're planning to empty out the account once a year anyway, how much interest are you losing?  How much interest does a savings account that never gets above a couple thousand dollars accrue in a year? 

[billf]

I know full-well that this is the wrong answer, technically, but I really like it anyway.  I have always withheld the maximum amount, regardless.  It acts as a savings account.  I am fully aware that the big difference is that a savings account earns interest and tax withholdings do not, but that's only relevant if the alternative to my withholding was that I would put the money in a savings account.  I wouldn't.  It would just disappear to every-day expenses.  My paycheck would be slightly bigger every two weeks is all, and my lifestyle would most likely just be slightly better.  What are we talking, $75 per paycheck?  That's not going to make a huge difference in your day-to-day lifestyle, but when you get a $2000 tax return, you suddenly have a REALLY REALLY useful lump sum of money.  Are you going to put that extra $75 per paycheck toward your credit cards, or are you going to keep paying minimums and go out to dinner a couple more times per month?  Who knows?  But when you get that $2000, you can plunk that right down on a credit card and then cut the sonofabitch up permanently.  Or make it a vacation fund. 

Of course it's better to put the extra money into a savings account if you have the discipline, but the big question is, "Are you filling up that savings account right now?"  If the answer is no, then what do you have to lose by having the IRS provide the necessary discipline?  A little interest, of course, but really, if you're planning to empty out the account once a year anyway, how much interest are you losing?  How much interest does a savings account that never gets above a couple thousand dollars accrue in a year? 

I'm reading this in disbelief with this kind of mentality and thinking.  Does it really take that much discipline to put away $75 a month?  You pay your bills each month, right?  Treat the $75 every two weeks ($150 one time a month) as another bill and sock away the money in some type of interest earning account.  Why on earth do you want the government to hold and do what it wants with your money?  You want the IRS disciplining you?  Wow. 

[shmokes]

Of course it's better to put the extra money into a savings account if you have the discipline . . .

It's worth pointing out that it takes more discipline than simply putting the $75 into the savings account every two weeks (that's $150/mo.).  A measure of discipline is also required in order to keep it there rather than emptying it out every couple months whenever "something comes up".  You can roll your eyes all day long, but you can't get around the plain fact that the VAST majority of Americans do not, in fact, have the discipline that you speak of so casually.  Most, actually, are in debt up to their eyeballs and live paycheck to paycheck.

[Bones]

Of course it's better to put the extra money into a savings account if you have the discipline . . .

Pumpkins have been going up all month and I got a feeling they're going to peak right around January.

Bugger the savings account, solid investment right there.....

[billf]

Of course it's better to put the extra money into a savings account if you have the discipline . . .

It's worth pointing out that it takes more discipline than simply putting the $75 into the savings account every two weeks (that's $150/mo.).  A measure of discipline is also required in order to keep it there rather than emptying it out every couple months whenever "something comes up".  You can roll your eyes all day long, but you can't get around the plain fact that the VAST majority of Americans do not, in fact, have the discipline that you speak of so casually.  Most, actually, are in debt up to their eyeballs and live paycheck to paycheck.

Actually doing something is always going to more difficult than to say it.  But once you do it, you'll have a feeling of success and once you start, it does become easier.  Not relying on the gov't to 'save' for you (wow that's hard to type without chuckling) is a big step toward that success.  Do you really think the rich and wealthy are getting rich and wealthy by letting the gov't keep their money.  No.

[LPZ]

I know full-well that this is the wrong answer, technically, but I really like it anyway.  I have always withheld the maximum amount, regardless.  It acts as a savings account.  I am fully aware that the big difference is that a savings account earns interest and tax withholdings do not, but that's only relevant if the alternative to my withholding was that I would put the money in a savings account.  I wouldn't.  It would just disappear to every-day expenses.  My paycheck would be slightly bigger every two weeks is all, and my lifestyle would most likely just be slightly better.  What are we talking, $75 per paycheck?  That's not going to make a huge difference in your day-to-day lifestyle, but when you get a $2000 tax return, you suddenly have a REALLY REALLY useful lump sum of money.  Are you going to put that extra $75 per paycheck toward your credit cards, or are you going to keep paying minimums and go out to dinner a couple more times per month?  Who knows?  But when you get that $2000, you can plunk that right down on a credit card and then cut the sonofabitch up permanently.  Or make it a vacation fund. 

Of course it's better to put the extra money into a savings account if you have the discipline, but the big question is, "Are you filling up that savings account right now?"  If the answer is no, then what do you have to lose by having the IRS provide the necessary discipline?  A little interest, of course, but really, if you're planning to empty out the account once a year anyway, how much interest are you losing?  How much interest does a savings account that never gets above a couple thousand dollars accrue in a year? 

I'm with shmokes on this one.  Every year we get a huge refund and we have taken care of some projects on the house, built a deck, pool, etc.  This year we're looking to move so that will add to the down payment.  Saving week to week sounds easy, but the extra money disappears so quickly.  I know alot of people frown by letting the government have their money all year, but If the money is out of sight, it also out of mind until tax return time.

[ChadTower]

I actually am pretty good at the saving/keeping savings stuff... I have a min savings level I feel comfortable with as a cushion and rarely go below it, which represents probably a solid 3 months of household expenses plus some left over.  I actually keep it closer to 4+ months' expenses.  That rarely gets touched beyond the occasional transfer out of a few hundred to cover something like a car repair and I get nervous about that until I replace it.  With that in place, I drop an extra $50/month to my wife's car, an extra $100/month principal only to our mortgage, and my wife's whole salary is going to the home equity line since she has run it up getting an associate's degree and teaching certification over the last 18 months.  That $150 month for the car/mortgage are covered by my driving a '99 Civic that has been long since paid off.

shmokes is absolutely right about most people not having any discipline whatsoever.  I know quite a few people that are making good two income money and still live paycheck to paycheck.  One interruption of income and they're in panic mode.  Lose a job and all hell breaks loose.  I grew up really poor so I'm very conservative with money and my wife is dead straight Irish so she'll squeeze a nickel until it becomes a dime.  That's why I get nervous about stuff like this... I'll be damned if anything short of a massive coronary puts my kids into the manner in which I grew up.

Maybe if some folks used a partial direct deposit to put $75/month into an account you barely ever look at?  That's out of sight and the deposit schedule is out of your hands in the manner of a 401k.

[zaphod]

Maybe if some folks used a partial direct deposit to put $75/month into an account you barely ever look at?  That's out of sight and the deposit schedule is out of your hands in the manner of a 401k.

I've do this and it works great.  I have numerous sub accounts setup within my ing account that I have the money broke out into: annual insurance, vacations, entertainment, emergency fund, etc.  Each month $x goes into each automatically.  That way I have all the money needed for each bill when it arrives.  Plus it makes it real easy to show the wife how much money we have saved for example the appliance fund.  Sounds really anal, and it probably is.  But it works for us.

I agree with Chad's thinking on this topic.  I'm very conservative too and will do whatever I can to try to ensure my family never has to make a decision whether to buy food or keep the electricity on.  I will drive my '96 Nissan (and the family takes the newer SUV) until it stops running- you sure cannot beat the payments.  

[ChadTower]

That and shmokes' $2000 return figure... folks with a big mortgage usually get at least that much from the interest deduction alone.  I think I paid like $12,000 in mortgage interest last year and our mortgage is pretty conservative for this area.

[shmokes]

I'm good at getting things out of sight.  I've been contributing to 401ks and IRAs from a really young age.  And I never even think about that money.  I literally forget about it.  But I also (up until recently when my exit from the workforce put us in abject poverty) always set up direct deposits so a portion of my paycheck would route into a savings account and it just never seems to build beyond like $1000.  We'll get it up there, and then some expense will pop up like we'll need to replace the tires on our car or we talk ourselves into buying, you know, a grill or something, or I'll study abroad for a month.  We'll knock it down and it'll build back up and then we knock it down, etc.  The important thing about the IRS savings account, though, isn't so much that it puts it out of mind, it's that it puts it out of reach (I never would have studied abroad without it).

I used to be pretty bad.  I just kick myself for having any debt at all.  For years my wife and I were both working, making decent wages, had no kids, incredibly low rent, and no car payment.  And we just spent like morons.  AND we still managed to use credit cards in spite of having so much disposable income.  Just inexcusable.   There was a point when I could have been putting $1500 a month directly into savings if I didn't have a bunch of credit cards that needed to be paid off.  I was, in fact, paying $1400 a month toward credit cards (about $1000/mo above minimum payments).  We've certainly got our spending in check these days.  I just kick myself for not having more discipline in the past.  Things would be so much easier now. 

But yeah, self-discipline is unquestionably superior to IRS-based forced discipline.  But the latter, I think, is superior to no discipline or poor discipline.  If one of the latter two apply to you, don't let the principle of the IRS thing deter you.  The most important consideration is the reality of your own deficiencies.  The IRS isn't the most efficient use of your money, but at least it's not the least efficient use.  And, to be honest, I think that my conscious decision to have smaller paychecks in order to make use of the IRS savings account was in many ways a turning point for me.  I was making short term sacrifices for long-term benefits for just about the first time in my life.  I really think that saving through tax withholdings actually made me start treating finances in other areas more responsibly.

[ChadTower]

I was making short term sacrifices for long-term benefits for just about the first time in my life. 

That's where the way I grew up comes in... that behviour is first nature when you've been doing that from your earliest memories and there is absolutely zero margin for error. 

EDIT:  well, I should add, that becomes first nature if you ever intend to improve your situation.  Many people at the bottom of the financial barrel never learn that.

[shmokes]

Well . . . I don't know your precise level of poverty, but I was pretty damned poor.  My Dad made about $40,000 a year by the time I moved out of the house in 1996, which isn't too bad, but my mom never worked and, since they had 15 kids, there was almost always 9 or 10 living at home at any given time, and never in my life did my parents accept a penny of welfare or food stamps or even WIC.  I had a job pretty much since I was 10 (paper routes and the like), but I never treated the money responsibly, aside from sometimes having to buy my own clothes.  I wish that my poverty made me financially responsible, but I think it had the opposite effect.  When I found myself able to have things for the first time in my life, I was having them and that was all there was to it.   

[Samstag]

I prefer to be the short-term savings account for Uncle Sam.  I withold close the minimum I can get away with without being penalized.  With a %5 savings account I can easily make $100-150 extra on Uncle Sam each year.

[rimshot]Before taxes, that is...[/rimshot]

[ChadTower]

Well . . . I don't know your precise level of poverty, but I was pretty damned poor.  My Dad made about $40,000 a year by the time I moved out of the house in 1996, which isn't too bad, but my mom never worked and, since they had 15 kids, there was almost always 9 or 10 living at home at any given time, and never in my life did my parents accept a penny of welfare or food stamps or even WIC.  I had a job pretty much since I was 10 (paper routes and the like), but I never treated the money responsibly, aside from sometimes having to buy my own clothes.  I wish that my poverty made me financially responsible, but I think it had the opposite effect.  When I found myself able to have things for the first time in my life, I was having them and that was all there was to it.   

Below that.  Well below.  Senselessly below, now that I'm adult looking back.

[boykster]

I prefer to be the short-term savings account for Uncle Sam.  I withold close the minimum I can get away with without being penalized.  With a %5 savings account I can easily make $100-150 extra on Uncle Sam each year.

[rimshot]Before taxes, that is...[/rimshot]

I used to have that approach, but after a couple of years of under-withholding and having to pay quarterly estimated taxes and penalties, I just said to heck with it.  I'm pretty good at balancing it out so that I'm square with uncle sam come tax time, but usually end up with a small refund that I sink into another type of investment.  One year I had to write a five figure tax check due to an accounting error at my wife's work (regarding some employee stock purchase plan shares that were bought and sold) and while it wasn't an issue to cover it, it stung enough that I'll eat the interest gains I didn't realize by overpaying on taxes and collecting annually.

We're very good about always having good cash reserves as well as strict savings plans.  I like to have at least 6 months of cash reserves in direct savings at all times (including mortgage and living expenses) and a good X multiplier of that in fairly easily accessed funds (CD's / money market / etc). 

As for the original question, it sounds like something was done incorrectly on her W4.  the easiest thing to do is to have her talk to someone in accounting and just tell them in non tax-speak how much she wants them to withhold.  A good rule of thumb would be to refer to your previous years tax return, find out what your nominal tax rate was, and have them withhold that %.  That way, no matter how it shakes out, you'll be in the right ballpark.  Yes, you can specify a particular % withholding, I do it all the time.

[ChadTower]

Hrm... the particular % withholding may be a reasonable way to go.  I have told her several times to talk to the payroll people, it never goes anywhere and the paychecks without withholding keep coming.  I thought about the advice above to have her claim single but ran the numbers and it is not good advice.  That results in withholding of a full 10% lower than the rate for our combined income.

[zaphod]

I believe you can also specify a dollar amount to withhold additionally each paycheck.

[ChadTower]

Yep... where I was originally was thinking I'd have to have her single rate withheld and then an additional amount that way... turns out most of the advice sites (which were quite vague) said to figure the amount of allowances we have combined and then split them between us, putting most or all of them on the higher paying job while also subtracting whatever allowances the two earner worksheet says to subtract...   That's what I'm trying but problem there is that it gives you no visibility into what that actually means and if it will be enough.

This is the first I've heard of being able to just tell them "take out 25%" and they'd do it.

[boykster]

I believe you can also specify a dollar amount to withhold additionally each paycheck.

yep, that works too...figger out a rate, back calculate how much that would be, and have them withhold that amount.  That may be what they do when I specify a percentage to withhold, and they just know what to do with the numbers.

[boykster]

the key here is getting the egghead accountants to do the work for you.  Tell them what you want, have them make the changes and fill out a new copy of the form, and then have your wife sign it. 

[ChadTower]

Heh, if only it were that simple... my wife works for a daycare/preschool that acts like any HR task is a Herculean act of God, and I work for a company where the HR stuff involves filling out a form and using Postal mail to mail it to an address that is likely in the same building and then getting bundled up and sent to India where HR actually is... I swear to god, every company I've ever dealt with takes all of their least competent, surliest, drunkest, least English speaking canines and puts them in HR.

EDIT:  Finally... found a good tutorial.

[SirPeale]

I wouldn't worry about it.  You'll either just get back a lower refund at years end, or owe more.  Just put 25% of your wife's income away and don't touch it, and you'll be fine.

Chad:  When Peale is giving you financial advice, it just might be time to end it all.  I'm just saying.

What exactly are you trying to say here, Ed?

[Ed_McCarron]

I wouldn't worry about it.  You'll either just get back a lower refund at years end, or owe more.  Just put 25% of your wife's income away and don't touch it, and you'll be fine.

Chad:  When Peale is giving you financial advice, it just might be time to end it all.  I'm just saying.

What exactly are you trying to say here, Ed?

Nothing in particular.  Needed to pick someone for the Chad slam, and you were available.  Coulda said Boykster, too.

[ChadTower]

How exactly is that a slam on me?  Sure doesn't look like that.

[boykster]

CHICK FIGHT!!!!

 

[Ed_McCarron]

How exactly is that a slam on me?  Sure doesn't look like that.

It was a misguided attempt at humor.  Sorry if I offended anyone.

Peale, you're a good guy.

Chad, you're ugly and your mother dresses you funny.

Better?

[shmokes]

. . . acts like any HR task is a Herculean act of God . . .

I got a kick out of this.  I'm pretty sure the implication here is that Hercules is more powerful than god   

[ChadTower]

The implication is that neither is powerful enough on their own to perform an act of HR.  They must join forces.

[DrewKaree]

I go out for a slow drive and think about it



Just doing my bit to help bring some cheer to another, even if it's weeks late